Corporate Debt Structure

Liability Strategies Group
Global Markets
Corporate Debt Structure
February 2006
Authors
Henri Servaes
Professor of Finance
London Business School
Peter Tufano
Sylvan C. Coleman Professor
of Financial Management
Harvard Business School
Editors
James Ballingall
Capital Structure and Risk
Management Advisory
Deutsche Bank
+44 20 7547 6738
james.ballingall@db.com
Adrian Crockett
Head of Capital Structure and
Risk Management Advisory,
Europe & Asia
Deutsche Bank
+44 20 7547 2779
adrian.crockett@db.com
Roger Heine
Global Head of Liability
Strategies Group
Deutsche Bank
+1 212 250 7074
roger.heine@db.com
The Theory and Practice of Corporate

Debt Structure
The Theory and Practice of Corporate Debt Structure
February 2006
Executive Summary
This paper discusses the theory and practice of corporate debt structure, drawing on
the results of a recent survey.
Theoretical Considerations
Under perfect capital market assumptions, the structure of debt has no impact on
the value of the firm
In order for debt structure to matter, one or more of the following effects need to
be obtained:
Reduction of taxes
Reduction of transaction costs
Provision of better information to the market
Reduction of agency costs
Improvement of access to capital markets
Reduction of distress costs
Generally, volatile cashflows are costly because they increase expected tax costs
and exacerbate information asymmetries
Floating rate debt is generally cheaper than fixed rate debt but may lead to
increased volatility
If, however, interest rates are positively correlated with cashflows and/or
negatively correlated with investment needs, floating rate debt may reduce
volatility by acting as a partial natural hedge
The debt maturity decision is driven by the desire to mitigate rollover risk and a
variety of other factors relating to risk transfer between debt and equity investors
The currency mix of debt is driven by the desire to reduce the risk associated with
foreign assets, cash flows and earnings as well as various market and regulatory
factors such as market depth and relative taxes
The choice between public debt and bank debt is affected by relative transaction
costs and a variety of factors relating to information asymmetries
Survey Results
Firms are very sophisticated when it comes to deciding on debt structure. More
than half of the firms have specific targets for fixed/floating mix, short-term/longterm debt, average maturity, duration, and the fraction of borrowing done from the
banking sector
Pricing is the most important element when considering debt structure and the
issuance of hybrids
Firms consider current pricing as well as current prices relative to

expectations and relative to historical norms. As such, firms often take a view
on future price movements when structuring their debt
Firms often decide on the structure of their debt without fully considering the
February 2006
firms assets. This is especially the case when firms decide on the
fixed/floating mix of debt
When it comes to deciding on maturity structure and debt currency mix, the
structure of the firms assets is more important, but even for those elements of
debt structure, pricing factors receive a lot of weight
Overall, the link between academic and practitioner considerations is weaker than
anticipated
February 2006
Contents
Table of Contents
Introduction .......................................................................................................................7
This Paper ....................................................................................................................7
Global Survey of Corporate Financial Policies & Practices..........................................7
Related Papers .............................................................................................................7
Notation and Typographical Conventions.....................................................................8
Fundamental Concepts.....................................................................................................9
Yield Curves .................................................................................................................9
Pure Expectations Theory ......................................................................................10
Liquidity Preference Theory ...................................................................................10
The Preferred Habitat Theory ................................................................................11
Which Theory Is Correct?.......................................................................................11
Credit Risk vs. Interest Rate Risk...............................................................................12
The Term Premium and the Credit-Risk Premium .....................................................13
Exchange Rate Determination....................................................................................14
Theoretical & Practical Considerations...........................................................................15
The Impact of Derivatives ...........................................................................................15
Irrelevance ..................................................................................................................15
When Does Debt Structure Impact Firm Value? ........................................................16
Costs of Cashflow Volatility ........................................................................................17
Fixed/Floating Mix of Debt ..........................................................................................17
Correlation under Pure Expectations Theory .........................................................17
Correlation under Liquidity Preference Theory ......................................................18
Evaluation of Treasury Function ............................................................................18
Maturity Structure of Debt...........................................................................................19
Information .............................................................................................................19
Rollover (Event) Risk..............................................................................................19
Underinvestment ....................................................................................................19
Risk Taking.............................................................................................................20
Cash Flow Matching...............................................................................................20
Currency Mix of Debt ..................................................................................................20
Relative Taxes........................................................................................................20
Reducing Cashflow Volatility ..................................................................................20
Overcoming Capital Controls .................................................................................21
Depth of the Capital Market and Investor Access ..................................................21
EPS Volatility ..........................................................................................................22
Evaluation of Treasury Function ............................................................................22
Sources of Debt ..........................................................................................................22
Borrowing Flexibility ...............................................................................................22
Transaction Costs ..................................................................................................22
February 2006
Asymmetric Information..........................................................................................22
Asymmetric Information and Covenants ................................................................23
Liquidation and Renegotiation................................................................................23
Underinvestment Problem......................................................................................23
Hybrid Securities.........................................................................................................24
Taxes......................................................................................................................24
Asymmetric Information..........................................................................................24
Regulation ..............................................................................................................25
Rating Agencies .....................................................................................................25
Transaction Costs ..................................................................................................25
When Pricing Is Not Fair ........................................................................................25
Market Timing .............................................................................................................25
Summary.....................................................................................................................26
Survey Results ................................................................................................................27
Framing the Questions ...............................................................................................27
What Do Firms Target? ..............................................................................................27
What Are The Targets? ..............................................................................................28
What Factors Are Important in Setting the Targets? ..................................................30
Fixed/floating Mix of Debt.......................................................................................30
Maturity Structure of Debt ......................................................................................32
Currency Mix of Debt..............................................................................................33
Source of Debt .......................................................................................................36
Hybrid Securities ....................................................................................................37
Summary.....................................................................................................................39
February 2006
Table of Figures
Figure 1: Example Upward Sloping Yield Curve...............................................................9
Figure 2: Example Inverted Yield Curve .........................................................................10
Figure 3: Forward Implied 6 Month Rate and Realised 6 Month Rate ...........................12
Figure 4: Corporate Debt Yield Over Benchmark (Credit Spread) by Rating Category .13
Figure 5: Proportion of Firms Indicating USe of Various Debt Structure Targets...........28
Figure 6: Target Levels ...................................................................................................29
Figure 7: Factors Determining Fixed/Floating Mix of Debt .............................................30
Figure 8: Factors Determining the Fixed/Floating Mix of Debt .......................................31
Figure 9: Factors Determining Maturity Structure of Debt ..............................................32
Figure 10: Factors Determining Currency Mix of Debt ...................................................34
Figure 11: Factors Determining Currency Mix of Debt - Regional Ranking....................35
Figure 12: Factors Determining Source of Debt .............................................................36
Figure 13: Use of Hybrid Securities ................................................................................37
Figure 14: Factors Determining ......................................................................................38
Table of Appendices
Appendix I: References...................................................................................................41
Appendix II: Detailed Results..........................................................................................42
Acknowledgments
The thanks of the Authors and Editors are due to various parties who have assisted in
the preparation and testing of the survey itself, the compilation of results and the
preparation of these reports. We would specifically like to thank Sophia Harrison of
Deutsche Bank for her extensive work on data analysis and presentation of materials
and Steven Joyce of Harvard University for his research assistance. Our thanks are
also due to the members of Deutsche Banks Liability Strategies Group and other
specialists throughout Deutsche Bank for their useful insights throughout the process; to
the projects secondary sponsor, the Global Association of Risk Professionals (GARP),
and GARP members for their assistance in preparing and testing the survey questions
and website; and to the technology providers, Prezza Technologies, for developing the
survey website and especially for accommodating last minute changes to very short
deadlines. Finally, we would like to thank Deutsche Banks corporate clients who
participated in the survey for their time and effort. Without them this project would not
have been possible.
February 2006
Introduction
This Paper
This paper provides an overview of current structure of debt theory together with a
detailed analysis of the results of a recent corporate structure of debt survey. The paper
is divided into four sections:
This Introduction
Fundamental Concepts
Theoretical & Practical Considerations
Survey Findings
This paper is not about the absolute level of debt financing that decision is discussed
in our paper Capital Structure. Instead we deal with the following elements of the
structure of debt financing:
Fixed versus Floating Mix of Debt: How much of the debt should be at floating
interest rates and how much at fixed interest rates?
Maturity Structure of Debt: What should be the maturity structure of the debt?
Currency Mix of Debt: What should be the currency mix of the debt?
Source of Debt: What proportion of the debt should be obtained through bank
loans and what proportion through capital markets?
Hybrid Securities: How do hybrid securities fit into a firms capital structure?
Note that these topics cannot be considered in isolation. Nor can the decision on the
optimal level of debt be considered in isolation of the question on debt structure.
Global Survey of Corporate Financial Policies & Practices

The empirical evidence in this paper is drawn from a survey conducted during mid 2005
by Professors Henri Servaes of London Business School and Peter Tufano of Harvard
Business School. The project was originated and sponsored by Deutsche Bank AG with
the Global Association of Risk Professionals (GARP) acting as secondary sponsor.
334 companies globally participated with responses distributed widely by geography
and by industry. Further details of the sample can be found in the note Survey
Questions and Sample which is available at www.dbbonds.com/lsg/reports.jsp.
Related Papers
In addition to this paper, five other papers drawing on the results of the survey include:
CFO Views
Corporate Capital Structure
Corporate Liquidity
Corporate Dividend Policy
Corporate Risk Management
February 2006
All these papers are available at www.dbbonds.com/lsg/reports.jsp. The website also

contains a streaming video of Professors Servaes and Tufano presenting an overview
of the results at a Deutsche Bank hosted conference.
Notation and Typographical Conventions

The symbol x denotes the mean of a dataset, while ~
x denotes the median. N denotes
the size of the dataset. All questions in the survey were optional and some questions
were not asked directly, depending on the answers to previous questions. Therefore,
the number of responses, N, to different questions varies and is shown for each
question. Items in italics indicate that the term appeared as one of the answer options in
the survey question. Items underlined indicate a reference to one of the other papers in
this series. Due to rounding, the numbers in some figures may not add up to the 100%
or the total shown.
Unless otherwise stated, all data in this document is drawn from the results of the
Global Survey of Corporate Capital Structure and Risk Management.
February 2006
Fundamental Concepts
For completeness, in this section we provide a brief overview of fundamental concepts
that are critical to fully appreciate the impact of changing different facets of a firms debt
structure on its risk profile. Readers who are familiar with the theories of the term
structure of interest rates, credit spreads and exchange rates are advised to skip this
section.
A more comprehensive coverage of this material, together with references to the
primary literature, can be found in most introductory finance textbooks. See, for
example, Brealey and Myers (2005).
Yield Curves
In order to understand maturity and fixed/floating decisions, it is important to understand
some of the basics of yield curves.
The yield on a bond is the effective annual rate of interest on the bond.1 This will be
different from the coupon on that bond if the bond is not trading at par.
A yield curve is a plot of yields earned on a certain asset class against maturities. A
yield curve can be created for any segment of the marketfrom treasury debt, to AAA
corporate debt to non-investment grade corporate debt. Often yield curves plot the
yields on coupon bonds against maturities, but in its purest form, the yield curve should
reflect the rate of return earned on zero-coupon bonds of the specific maturity. If that is
the case, investors can see exactly what return they can expect on their investment,
without any reinvestment risk.
The shape of the yield curve varies over time. The most common shape is upward
sloping (see Figure 1), which suggests that investments of longer maturities earn higher
rates of return than investments in shorter maturities.
Yield
Figure 1: Example Upw ard Sloping Yield Curve
Maturity
However, yield curves are sometimes downward sloping, albeit that there is often a
slight increase in the slope over short horizons. These yield curves are called inverted
yield curves (see Figure 2).
1
More formally, the yield is the Internal Rate of Return on the bond.
February 2006
Yield
Figure 2: Example Inverted Yield Curve
Maturity
The slope of the yield curve varies over time, and on occasion, it is virtually flat.
What explains the shape of the yield curve? Three theories have been forwarded.
Pure Expectations Theory
The pure expectations theory suggests that yield curves reflect investor expectations
about future short-term interest rates. Investors are indifferent between long-term
investments or rolling over a series of short-term investments, because they result in the
same expected return.
Thus, if a two-year zero coupon bond is yielding 5%, and a one-year zero coupon bond
is yielding 3%, this implies that investors must expect short-term interest rates to rise,
so that at the end of two years, they earn the same rate of return whether investing for
two years now or rolling over the one-year investment.
The expected increase in interest rates is easy to compute, simply divide the two-year
return by the return in the first year, and the result is the one-year return required when
rolling over a one-year investment at the end of the first year:
(1+ 5%)2 1 = 1.1025 1 = 7.04%

(1+ 3%)
1.03
Thus, according to the expectations theory, in the above example, short-term (1 year)
interest rates will increase from 3% now to 7.04% one year from now.
If the pure expectations theory holds, then the yield curve should be flat, on average. If
it is upward sloping, on average, this implies that investors would always expect shortterm interest rates in the future to be higher than short-term interest rate today, which
cannot always be the case. Given that yield curves throughout the world are generally
more upward sloping than downward sloping (inverted), the pure expectations theory of
the yield curve cannot fully explain its behavior.
Liquidity Preference Theory
According to the liquidity preference theory, long-term interest rates not only reflect
expectations of future short-term interest rates (as in the pure expectations theory), but
also include a premium required by long-term investors to induce them to hold the
instruments.
10
February 2006
The liquidity preference theory asserts that if investors can earn the same return holding
a sequence of short-term bonds as holding a long-term bond, they will prefer to hold
short-term investments. This may appear counterintuitive because the return on a longterm investment can be locked in, while the return on a sequence of short-term
investments is more uncertain. However, there is a countervailing factor, which is that
the value of long-term investments is much more susceptible to changes in interest
rates than the value of short-term investments. Thus, if investors are forced to liquidate
the long-term investment prematurely, they can only do so at greater risk.
The implication of the liquidity preference theory is that investors charge a premium for
longer-term investments, a so-called liquidity or term premium2. Companies that want to
borrow long-term are forced to pay this premium. The liquidity preference theory can
explain why yield curves are upward sloping, on average.
The Preferred Habitat Theory
Finally, the preferred habitat theory (sometimes called market segmentation theory)
suggests that certain groups of investors prefer short-term investments, while others
prefer long-term investments, and that interest rates in both markets behave somewhat
independently.
Of course, if the markets are too much out of line, investors are willing to change their
preferred habitat.
The general interpretation of the preferred habitat theory is that more investors prefer
short-run investing, so that debt issuers have to pay a premium to attract investors to
long maturity issues.3 This theory can also explain the traditional, upward-sloping shape
of the yield curve.
Which Theory Is Correct?
Of the three theories, the preferred habitat and the liquidity preference theories have
gained the widest acceptance.
Looking back over time we can see that the actual progression of interest rates, also
supports either the liquidity preference or preferred habitat theory. In Figure 3 below we
show forward curves over more than 50 years and the actual evolution of the 6 month
rate. The thin grey line on the far left shows the forward curve (derived from US
Treasuries data) as it was at the end of April 1952. The thin grey line immediately to its
right shows the forward curve as it was at the end of April 1953. Under expectations
theory, these lines can be considered to be forecasts of the 6 month rate. The dark blue
shaded area shows the realization of the 6 month rate.
Since longer term investors are affected more by interest rate movements the liquidity premium is an
increasing function of debt maturity.
3
In this theory the difference between expected interest rates and the forward curve is not necessarily an
increasing function of maturity.
11
February 2006
Figure 3: Forw ard Implied 6 Month Rate and Realised 6 Month Rate
18%
16%
14%
12%
10%
8%
6%
4%
2%
0%
Apr-52 Apr-57 Apr-62 Apr-67 Apr-72 Apr-77 Apr-82 Apr-87 Apr-92 Apr-97 Apr-02
Source: Bloomberg and US Federal Reserve.
Credit Risk vs. Interest Rate Risk

The discussion above is about the exposure of investors to changes in the general level
of interest rates. Of course, with any investment other than highly rated government
debt, investors are also exposed to changes in the credit quality of the issuer. Figure 4
shows the increase in yield over comparable government debt (the benchmark) that
corporate borrowers of different ratings have to pay. This difference is often called the
credit spread.
12
February 2006
Figure 4: Corporate Debt Yield Over Benchmark (Credit Spread) by Rating Category
A AA
1,600
AA
A
BBB
1,400
Non Investment Grade
1,200
1,000
800
600
400
200
0
Jan-00
Jan-01
Jan-02
Jan-03
Jan-04
Jan-05
Jan-06
Source: Deutsche Bank iBoxx Indices
Note that, while credit spreads may change over time, higher rated issuers usually pay
lower spreads.
The credit risk can be separated from the interest rate risk through the issuance of
floating rate debt. When a firm issues floating rate debt, the firm is exposed to interest
rate risk, while investors remain exposed to changes in the firms credit risk.
The ability to divide these risks partly affects the previous discussion on the premium
charged by investors for holding long-dated securities. When an investor purchases a
long-dated bond with a floating interest rate, this investor still has much more exposure
to the credit risk of a firm than an investor purchasing a short-dated bond. Investors will
therefore continue to require a premium for holding long-dated securities, even if they
are protected against price changes through interest rate movements.
The Term Premium and the Credit-Risk Premium

The above discussion suggests that investors require two premia for holding long-dated,
fixed rate securities:
Term Premium:
For holding long-dated securities
Credit Risk Premium:
For holding riskier securities
13
February 2006
On average, across all bonds issued, these premia should be fair. By fair, we mean that
they reflect the fair price for the additional risk taken by the investor. If this is not the
case, investors would switch to those securities that offer a high premium, thereby
driving up the price and reducing the premium offered. This argument does not imply
that the choice between fixed and floating rate debt and short-term and long-term debt
is a matter of indifference, however.
Exchange Rate Determination

Covered interest rate parity says that expected movements in exchanges rates are
driven by differences in interest rates between two countries. Specifically:
E(s ) = s
1 + rD
1+ rF
where s is the current exchange rate (expressed as the number of units of domestic
currency you need to buy one unit of foreign currency), E(s ) is the expected exchange
rate, rD is the domestic interest rate and rF is the foreign currency interest rate. This
theory is well supported by long-term academic evidence.
Example
Assume that you are a corporation based in Norway and are considering borrowing,
unhedged, in US Dollars. Assume that the current Norwegian KroneUS Dollar rate is
6.7000 (i.e., 1 Dollar is worth 6.7 Krone). Also assume that interest rate in Norway is 3%
and the interest rate in the USA is 5%. The expected exchange rate in one year is then
6.5724 [=6.7000(1+3%)/(1+5%)].
Note that if covered interest rate parity holds then there is no advantage in borrowing in
currencies with low interest rates. The expected appreciation of the foreign currency will
neutralize the upfront benefit of lower initial interest expense.
14
February 2006
Theoretical & Practical Considerations

In this section we discuss various aspects of debt structure and the theoretical and
practical arguments that have been put forward.
The Impact of Derivatives

In this paper we generally consider the structure of debt after the impact of any related
derivatives. For example, a firm that issues a fixed rate bond but enters into an interest
rate swap would be considered to have issued floating rate debt for our purposes. In
efficient capital markets there is no difference and in practice we would encourage firms
to choose the option that is cheapest overall.
The only factor that makes the fixed rate bond + swap structure different from the
floating rate bond structure is credit risk associated with the swap counterparty. This risk
is normally low.
Irrelevance
To understand how debt structure may affect shareholder value, it is important to
understand under what circumstances it does not matter.
As a starting point in the analysis, lets consider a very simplified scenario in which:
There are no taxes
Corporate executives have the same set of information as investors
There are no transaction costs
Investors and markets are rational
The firms level of investment is fixed
There are no costs of recontracting or bankruptcy
The interests of managers and shareholders are aligned
We call these the perfect capital markets assumptions. In addition, assume that covered
interest rate parity4 holds.
Under these conditions, the actual structure of the firms debt is irrelevant. It does not
matter whether the firm borrows fixed or floating rate, short-term or long-term, and
whether the firm issues foreign currency debt or not. Nor does it matter whether the firm
borrows from banks or capital markets.
With full information available, all providers of capital can charge a fair price for the
securities the firms asks them to hold. If this price is fair, the actual structure of the debt
does not matter.
Similarly, it does not make sense for a firm to issue debt in a foreign currency to take
advantage of lower interest rates. The lower interest rates will be reflected in currency
appreciation, so that when the interest and principal are repaid, the expected out-ofpocket expense for the firm is the same.
See the section Fundamental Concepts: Exchange Rate Determination for an explanation of covered
interest rate parity.
15
February 2006
Hybrid securities have no particular advantages either. Whatever the stream of

promised repayments by the firm, the securities will be priced fairly in the market and
investors could, in fact, replicate the value of the hybrid by dynamically trading the firms
other securities.
The market is as well informed about the prospects of the business as the management
of the firm so security issuances do not provide any special information to the market. In
addition, firms that have good prospects, but no internal financing available, will be able
to obtain additional financing at a fair price.
When Does Debt Structure Impact Firm Value?

For debt structure to matter, we need to relax one or more of the assumptions listed in
the above section on Irrelevance. In particular, one or more of the following effects need
to be obtained:
Reduction of Taxes: The debt structure reduces the tax burden of the firm without
a proportionate increase in the tax burden of the investors. If the structure reduces
the joint tax bill of the firm and its investors, the value of the firm will increase by the
present value of the tax savings
Reduction of Transaction Costs: The debt structure provides payoffs to investors

which they cannot replicate on their own at the same cost. If investors desire to get
certain payoffs in certain states of nature, and if the transaction costs of creating
such payoffs are high (because of high trading costs in shares, bonds, or
derivatives), then the structure can create value
Provision of Better Information to the Market: If the structure allows the firm to
better communicate its value to the market, this can also be value creating. Thus,
this argument is not about changing the expected cash flows of the firm, but about
informing the market about these expected cash flows
Reduction of Agency Costs: The debt structure diminishes conflicts of interest

between managers, bondholders, and shareholders. The costs of these conflicts are
ultimately borne by the equityholders of the firm and if the firm can avoid these
costs then there may be a value gain
Improvement of Access to Capital Markets: If the debt structure allows to firm to

plan better when it needs to access capital markets, or allows the firm to continue
meeting its investment needs without having to access capital markets, value is
created. This is the case because accessing capital markets is costly
Reduction of Distress Costs: If the debt structure allows the firm to avoid direct or
indirect costs of financial distress, value is created
In sum, the structure has to: reduce taxes, reduce transaction costs, reduce agency
costs, provide better information to the market, improve access to capital markets or
reduce distress costs. We will discuss how these elements translate into debt structure
decisions.
Two other sets of considerations are important:
16
Regulatory Considerations: In regulated industries, regulators may require firms

to have a maximum level of debt or short-term debt and may frown upon certain
instruments. Similarly, some instruments that may appear debt-like may receive
some equity treatment from regulators. This article will not review regulatory
February 2006
considerations in detail, given significant differences between jurisdictions, industry

and regulatory regimes. We note that firms need to abide by them, and that these
considerations may make certain instruments attractive
Market Sentiment and Irrational Pricing: If certain instruments or certain

maturities are not fairly priced, companies should obviously take advantage of this
mispricing. If interest rates are low for a certain maturity or in a certain currency
(relative to what they should be, given exchange rate expectations), firms should tilt
their borrowing towards the areas where the mispricing is observed. Similarly, if
rating agencies irrationally care about certain aspects of a firms debt structure, and
downgrade firms that do not follow their advice, companies have little choice but to
alter their policies. Again, this article will not deal with market sentiment and
irrational pricing, except to note that firms should take advantage of these cases
when possible. It is important to note, however, that firms should not lock in longterm obligations that could have negative cash flow consequences, just to cater to
the current market sentiment, because the sentiment may change very quickly.
Costs of Cashflow Volatility

As outlined in more detail in our paper on Risk Management, cash flow volatility is
associated with a number of problems:
Leads to costs of financial distress
Makes it more difficult for the firm to continue making investments and pay
dividends because it will force the firm to access capital markets more frequently
and with less advance warning
Reduces the debt capacity of the firm
In jurisdictions with progressive tax rates on corporate income, cash flow volatility
leading to earnings volatility increases the tax payments of the firm
Makes it more difficult to communicate with investors
Negatively affects the quality of daily decision making
In addition, cash flow volatility will also lead to increase volatility in EPS. If equity
investors do not have all the information about the firm, they may look to the EPS
number and the volatility thereof to try to gauge the health of the firm. While there is no
theoretical support for this behavior, it is not uncommon to observe it in practice.
These consequences of increased cash flow volatility need to be taken into when
deciding on debt structure, as some structures will lead to more volatility than others.
Fixed/Floating Mix of Debt

In this section we consider the decision of whether to employ fixed or floating rate debt.
The deep and liquid swap markets in most countries mean that firms can issue
whichever type of debt is cheaper in the market and swap into their preferred structure.
Correlation under Pure Expectations Theory
We start by assuming that fixed and floating rate debt have the same expected cost
which will allow us to focus purely on the role of volatility.
17
February 2006
It is tempting to conclude that if fixed and floating rate debt have the same expected
cost, fixed rate debt dominates because it avoids all the unpleasant consequences
associated with greater cash flow volatility. However, such a conclusion is not warranted
because it does not consider the interaction between the volatility of interest payments
and the volatility of the business. It is crucial to take into account both the liability side of
the balance sheet and the asset side.
If corporate earnings are positively related to interest rates, then firms have a natural
hedge in their ability to service floating rate debt. Debt service is high exactly when
funds are available and, more importantly, low when funds are short. Under these
circumstances, floating rate debt reduces the costs associated with cashflow volatility
and, hence, is beneficial. In fact, in many instances, cash flows would be more volatile
with fixed rate borrowing.
However, thinking about the correlation between profits and interest rates is not
sufficient. It is also crucial to think about the correlation between interest rates and
investment opportunities. The best scenario to support floating rate debt is one where
this correlation is negative; in that case, the high interest burden will not prevent the firm
from investing, because investment needs are weak.
In sum, floating rate debt is generally beneficial in terms of volatility if the correlation
between interest rates and profits is positive and/or the correlation between interest
rates and profits is negative. If the correlations are the other way around, then fixed rate
debt dominates from a volatility perspective.
Correlation under Liquidity Preference Theory
The above discussion assumes that the expected cost is the same for floating rate debt
and fixed rate debt. If floating rate debt has a cost advantage, on average, as
documented above, then this is just another element to consider. Some firms may
prefer floating rate debt because it is cheaper and serves as a natural hedge, leading to
reduced cash flow volatility. Other firms may prefer floating rate debt, even if it leads to
increased cash flow volatility, as long as the costs associated with the increased
volatility are outweighed by the cost advantage of floating rate debt. These could be
firms with lower levels of debt who are less affected by the volatility of interest rates. Still
other firms will prefer fixed rate debt because the extra cost associated with fixed debt
outweighs the costs of increased cash flow volatility.
The following list summarizes the factors and their impact on the choice of fixed/floating
debt:
Cost advantage:
Floating rate
Natural hedge:
Floating rate
High costs of cash flow volatility and no natural hedge:
Fixed rate
Natural hedge implies a positive correlation between interest rates and profits and/or a
negative correlation between investment needs and profits.
Evaluation of Treasury Function
If the treasury department of a corporation is evaluated based on the extent to which

interest rates can be locked in, then there is not much a decision to be made: fixed rate
debt dominates.
18
February 2006
It is also possible that the treasury department is evaluated based on the total interest
paid, perhaps in the short-run. In that case, even if interest rates are expected to
increase, the firm may choose to issues floating rate debt because it will lower interest
payments in the short-run.
Maturity Structure of Debt

As mentioned previously, investors generally want a higher level of compensation for
holding longer-dated investments, because they are taking more risk. If the risk is fairly
priced, firms should be indifferent between issuing short-dated or long-dated debt.
However, several important considerations affect the decision.
Information
If firms are better informed about their prospects than the market, they will select the
maturity structure which best fits this information set. Firms who believe that their
prospects will deteriorate will use long-term debt to lock in the current spread, while
firms who believe that their prospects will improve will use short-term debt because their
credit spreads will be lower in the future.
Of course, the market will take into account this decision making process, and charge a
higher interest rate for firms who issue long-term debt. As a result, firms with good
prospects are paying too high a price for long-term debt and they should issue shorter
maturities.5
The above discussion suggests a negative relationship between firm quality and debt
maturity structure. However, when firms are of extremely low quality or when very little
is known about the firms, they may not be able to access the public debt market
altogether. Instead, they may have to borrow from banks, and bank debt is generally
more short-term. This argument is further discussed below, where we review the choice
between public debt and bank debt.
Rollover (Event) Risk
The above discussion suggests that high quality firms should borrow only short-term,
with 100% of the debt maturing virtually on an annual basis. This is a risky strategy,
however, because it assumes that it is always possible to access the debt market.
However, because of unforeseen circumstances, credit may dry up and it may be
difficult to roll-over the debt. This could be because of macro-economic events, such as
the Asian crisis, which affects the level of liquidity in the markets, or because a bad
news event about the firm temporarily affects its ability to issue debt. If the firm cannot
roll-over its debt, this could lead to a liquidity crisis and financial distress.6 Firms should
therefore make sure that their debt maturities are spread out. However, higher quality
firms can afford to spread the debt across shorter maturities than lower quality firms.
Underinvestment
When a firm takes on a new project, which increases firm value, two groups of
claimholders on the firm benefit. Most of the gain goes to the equityholders of the firm,
but some accrues to debtholders as well. This is the case because, holding everything
else constant, an increase in firm value reduces the probability of default. If the firm has
5
6
See Flannery (1986) for a further discussion of this argument.

See Diamond (1991a) for a more detailed analysis of this argument.
19
February 2006
a lot of growth opportunities, relative to the value of its assets in place, it is possible that
the transfer of wealth to debtholders is so large that the firm will decide not to take the
project in the first place (see Myers, 1977). One solution to this problem is to issue
short-term debt, which matures before the firm has to make its investment decisions. Of
course, an alternative is simply to issue less debt, as discussed in our paper on Capital
Structure.
Risk Taking
The previous argument suggests that debt financing (and especially long-term debt
financing) may lead firms to forego projects that add value to the firm, because the
benefit accrues to debtholders. The reverse argument is also possible. It is possible for
firms to take projects which destroy value, but are in the best interest of shareholders,
because they increase firm risk so that the debtholders are the ones who lose out.
Again, this is especially the case if the debt-financing is long-term, because the
sensitivity of the value of the debt to changes in the risk of the firm is larger for longer
term financing.
Cash Flow Matching
We discussed rollover risk earlier, when we argued that this risk can be mitigated
through the issuance of longer-term debt. A related argument is that of cash flow
matching or maturity matching, which suggests that firms should match the maturity of
their assets with the maturity of their liabilities. This will avoid rollover risk to some
extent. This can only be undertaken if the maturity of the assets can be determined
easily.
Currency Mix of Debt

As discussed previously, when capital markets are perfect and covered interest rate
parity holds, the exact currency mix of the firms debt does not matter, because the
pricing in all currencies is fair. In this section we relax some of those assumptions.
Relative Taxes
In an international setting, the effect of different tax rates in different countries is likely to
have a strong impact on the currency mix of debt. Generally, firms should issue debt
and hence lower the tax bill in countries where tax rates are high.7 We note, however,
that:
The location of the entity (e.g., foreign subsidiary) issuing the debt is more relevant
than the currency of the debt. It may, however, be convenient to issue the debt in
the currency of the reporting entity that gets the tax deduction
If the decision to issue debt in a certain currency is related to its tax advantages,
such decision should not be made in isolation, but as part of the firms overall tax
optimization strategy
Reducing Cashflow Volatility
If firms have liabilities in the same currency as their assets then the amount of foreign
currency translation is reduced and the overall effect of exchange rate volatility on
7
Subject to thin capitalization regulations, foreign tax credits and double taxation agreements. A discussion of
these issues is beyond the scope of this paper.
20
February 2006
cashflow and earning volatility is reduced. This reduces all the costs of volatility we
described previously. Obviously, the value of the foreign asset is equal to the present
value of the foreign cash flows. Thus, hedging foreign cash flows with foreign currency
debt is the same as hedging the market value of the asset.
From a purely economic perspective it makes sense to hedge market values and not
book values, because book values do not reflect the value of the cash flows generated
by the asset.8 However, when the market value of an asset exceeds its book value the
accounting treatment of the hedges may complicate matters.
Hedging the book value of a foreign asset through the issuance of the same amount of
debt in that currency is called net investment hedging9. Variations in the book value of
the asset are equal to variations in the book value of the debt. As a result, there is
generally no balance sheet or EPS volatility.
If the amount of debt does not cover the book value of the assets, the firm has to markto-market the excess book value, and adjust the equity account on its balance sheet
with the difference. This generally leads to balance sheet volatility, but no EPS volatility.
On the other hand, if the amount of debt exceeds the book value of assets, the firm also
has to mark-to-market the excess, and this time, the adjustment is usually made via the
P&L statement, thereby making profits, and hence EPS, more volatile. Firms may
therefore decide not to hedge the full market value of a foreign asset if this value
exceeds book value.
The issue of hedging foreign currency cashflows is obviously complicated if those
cashflows are uncertain.
Overcoming Capital Controls
It may be the case that profits from a certain jurisdiction cannot be repatriated to the
home country, either because this would lead to additional taxation in that jurisdiction or
the firms home jurisdiction or because of capital controls. One way to avoid having
profits in that jurisdiction is to locate a large fraction of the firms overall debt in that
jurisdiction.10
Again, this is not really an argument for denominating debt in a foreign currency or for
swapping it into that currency. It is about the location of the entity that is legally obliged
to make the interest payments. It may, however, be practical to issue the debt in the
functional currency of the entity that services the debt, especially if the foreign currency
is not fully fungible.
Depth of the Capital Market and Investor Access
In some currencies, it may not be possible to raise substantial amounts of money

because the markets are not very deep. If that is the case, issuing debt in another
currency may be the only option available. Of course, it may be possible to swap the
debt back into local currency.
Under most accounting standards the market value and book value of acquisitions are likely to be same at
the inception of the investment, making that an ideal time to hedge.
9
Partial net investment hedging is also possible.
10
Subject to thin capitalization requirements.
21
February 2006
EPS Volatility
As mentioned previously, when foreign cash flows are not hedged, they could increase
the volatility of cash flows and EPS. While EPS volatility should have no consequences
for the share price in a rational market, if it does or if managers believe it does, it may
lead firms to decide on foreign currency denominated debt. However, those who use
this argument should be aware of the fact that the volatility of the exchange rate is often
much smaller than the volatility of EPS.
Evaluation of Treasury Function
If the treasury department of a corporation is evaluated based on the extent to which

interest rates can be locked in, then there is not much a decision to be made: domestic
debt dominates because the foreign interest payments are subject to exchange rate
fluctuations.
Sources of Debt
In perfect capital markets, the identity of the provider of funds does not matter: the cost
of obtaining funds from capital markets and from banks is the same because all parties
have the same information. If there is a difference in cost, holding everything else
constant, firms should obviously borrow from the lowest cost source. However, it is
often not possible to hold everything else constant.
Borrowing Flexibility
It may not be possible to obtain certain terms from bank financing. Banks are generally
reluctant to lend money at long maturities or at fixed interest rates. If this is indeed the
case, borrowing from capital markets may be the only option. On the other hand, it is
much easier to obtain financing that is non-standard from banks because they can
individually (or as a syndicate) negotiate specific items.
Transaction Costs
Transaction costs make capital market debt less attractive, especially for small amounts
of capital, because the fixed costs of accessing capital markets make up a larger
fraction of the amount raised. Other types of costs, which can be classified as
transaction costs, may also be important. It may quicker to obtain bank financing than to
go through the process of accessing capital markets. Firms may also be required to
obtain a rating when accessing capital markets. This requirement can further slow down
the process.
Asymmetric Information
The information gap between capital markets and the firm may also impact the choice of
lender. If firms have good future prospects, but the market is not aware of those, debt
raised from capital markets may well be more expensive than it should be. It may not be
possible for the firm to convey this positive information to the capital markets, either
because it is not credible or because it would affect the competitive advantage of the
business. However, it may be possible to convey such positive information to a financial
institution because of the one-to-one relation between the institution and the firm. This
possibility has two implications:
22
February 2006
The cost of borrowing from the bank may be lower than from capital markets
because there is less of an information asymmetry
The fact that the firm has borrowed from the bank may be a positive sign to the
financial markets
Consistent with this view, James (1987), Mikkelson and Partch (1986), and Lummer and
McConnell (1989) document that firms have a positive stock price response when they
announce that they obtained new credit lines.
Bank financing may have one further advantage. Banks not only obtain privileged
information at the outset of the relationship. They also monitor their borrowers and may
be much quicker to spot potential problems than other capital market participants. This
monitoring service has benefits for all of the firms investors.
The above discussion implies that bank debt may be particularly useful for firms with a
lower credit rating and greater asymmetric information, especially if they have good
prospects. Higher quality firms and firms that have a smaller information gap with the
market are therefore more likely to borrow from capital markets, because the benefits of
bank financing are smaller, and there is a cost associated with this monitoring [see
Denis and Mihov (2003) for a more detailed discussion]. In the process of monitoring
the firm, the bank may also obtain private information about the firm. The bank may
then be able to employ this privileged access to take advantage of the firm by charging
higher interest rates. The firm cannot simply take its business elsewhere, because such
a move would be seen by capital markets as a sign that the firms current bank does not
want to continue the relationship. In sum, the bank is able to extract rents from the firm
because of its privileged link [see Rajan (1992)]. This argument implies that firms should
avoid relying too much on a single bank to provide their financing.
Asymmetric Information and Covenants
Banks often insist that the firm meet a number of stringent covenants as part of the
lending agreement. This may well be to the advantage of the firm. By agreeing to limit
future behavior, the firm may be able to lower the cost of financing. However, these
covenants may prevent the firm from taking certain actions, and some firms would
prefer not to have such strict covenants. The solution to such problem may be to go for
capital markets debt instead of bank debt.
Liquidation and Renegotiation
Another reason why we would expect lower quality borrowers to employ bank debt is
because liquidation and renegotiation costs are higher when the firm has capital
markets debt. It is more costly to negotiate with a large number of public bondholders.
Moreover, when renegotiating with public bondholders, firms face a holdout problem:
while it may well be in the best interest of all bondholders as a group to renegotiate the
terms of the bond, this may not be the case for individual bondholders. These
bondholders may therefore refuse to renegotiate and hold out instead.
Underinvestment Problem
Bank debt may also help overcome the underinvestment problem discussed above. If
the benefits of a new investment project are likely to accrue to debtholders, firm
managers may decide not to undertake the project. The alternative would be to
renegotiate the terms of the debt contract with the debtholders. This will be very difficult
23
February 2006
if there are many public debtholders, but could work if the debt financing is provided by
banks.
Hybrid Securities
Any security with payoff patterns not traditionally described by the normal payoff
structures of plain debt or equity can be considered a hybrid. The general idea behind a
hybrid is that it contains features of both debt and equity. The simplest is convertible
debt, which is debt convertible at the option of the bondholder into a number of shares
of the firm.
Discussing all the possible features of hybrid securities is beyond the scope of this
paper. This section will therefore focus on the considerations that are important when
thinking about hybrids from a finance theoretical perspective.
In perfect capital markets and when covered interest rate parity holds, it should be clear
that there is no need to construct a particular payoff pattern to suit firms or investors. All
the instruments are fairly priced and the financing choice is therefore irrelevant.
Investors can always create any payoff structure they want (at no transaction cost). We
therefore need to seek out which imperfections can be overcome with certain types of
securities.
Taxes
One of the major advantages of debt financing is that it can reduce the firms tax bill.
However, debt financing can also lead to costs of financial distress. If a security can be
designed to maintain the tax benefits of debt financing while reducing financial distress
costs, this structure can be beneficial.
Asymmetric Information
As discussed several times in this article, there are substantial costs associated with the
information gap between the firm and its investors. These costs are due to the fact that
securities are sensitive to changes in firm value, which may affect their pricing. If a
security can be developed which is less sensitive to information changes, it may well be
beneficial. Convertible debt, for instance, is a security that shows little sensitivity to
changes in firm risk. If the firm is riskier than expected, the equity portion becomes more
valuable. If the firm is safer than expected, the debt portion becomes more valuable.
Thus, when capital markets are uncertain about the future risk of a firm, convertible debt
may well be the answer. This argument can also be employed when considering the
conflict of interest between equityholders and bondholders. When firms take decisions
that increase firm risk, holding everything else constant, equityholders benefit. When
firms take decisions that reduce firm risk, holding everything else constant, debtholders
benefit. A potential lender to the firm may therefore be worried that the firm will take
more risk than originally anticipated. This worry may lead to higher interest rates.
Alternatively, given that the value of convertible bond shows little sensitivity to changes
in interest rates, firms can issue convertible debt to assure future lenders that they will
not unduly increase firm risk.
Asymmetric information can also affect the firms access to capital markets. This causes
a problem if a firm is not cash-rich, but has to issue debt securities that require
substantial commitments of future cash flows. If a firm can issue a debt security, without
24
February 2006
having to employ cash to service it, this may be beneficial. Hybrids can be structured to
reduce the cash required to service the debt, especially in the first years of the issue.
Regulation
Firms that are regulated need to keep certain amounts of capital for regulatory reasons.
The classification of these securities into debt and equity type securities may not be
related to their actual payoff structure. Firms may be able to issue hybrid securities to
take advantage of this situation.
Rating Agencies
The above argument applies more generally to rating agencies. If these agencies are
willing to give firms equity credit for certain instruments, even though the payoff
structure of these instruments is more debt-like, firms can take advantage of this
situation.
Transaction Costs
The previous discussion focused on hybrid securities from the perspective of companies.
An alternative perspective is also possible. If investors like to obtain certain payoff
patterns because they fit with their consumption needs, they can always create them by
combining traditional securities. However, this could be quite costly. If hybrid securities
can be structured in a way that appeals to investors and reduces their transaction costs,
these structures may also be beneficial for corporations.
When Pricing Is Not Fair
If new securities come about that are not well understood by capital markets
participants, it is possible that they expect a required rate of return different from a fair
rate. Obviously, if the required rate is lower than the fair rate, firms should take
advantage of the situation. If the required rate of return is higher, firms may still consider
issuing a particular security if the extra cost is outweighed by the benefits discussed
above.
Market Timing
Although there is no theoretical justification for doing so, firms may alter their debt
structure decisions based on expectations about movements in interest rates, credit
spreads or exchange rates. For example, a firm considering its fixed/floating mix could
compare:
Current versus Historical Fixed/Floating Spreads: Firms may compare current

spreads between fixed and floating rate debt to historical spreads, and decide to
issue the type of debt which is cheap relative to historical norms
Current Fixed/Floating Spread: Firms may compare the current spread between
fixed and floating rate debt to the spreads they expect and decide to issue the type
of debt which is cheap relative to expectations
Expectations of Fixed/Floating Spread: Firms may look at expectations of future

interest rates to determine whether they should lock in a fixed rate for a long period
of time because interest rates are expected to increase or whether they should go
floating to take advantage of lower interest rates to come
25
February 2006
All of these decisions reflect attempts to predict future rates based on current and
historical market conditions. Firms may make similar comparisons for credit spreads at
different maturities and exchange rates.
Firms should be careful when making decisions based on such analyses, speculative in
nature. Firms should only take a view when they believe that they are better informed
than capital markets in general. While this may be possible for credit spreads, it will
rarely be the case for interest rates and exchange rates.
Summary
Under perfect capital market assumptions, the structure of debt has no impact on
the value of the firm
In order for debt structure to matter, one or more of the following effects need to be
obtained:
Reduction of taxes
Reduction of transaction costs
Provision of better information to the market
Reduction of agency costs
Improvement of access to capital markets
Reduction of distress costs
Generally, volatile cashflows are costly because they increase expected tax costs
and exacerbate information asymmetries
Floating rate debt is generally cheaper than fixed rate debt but may lead to
increased volatility
26
If, however, interest rates are positively correlated with cashflows and/or
negatively correlated with investment needs, floating rate debt may reduce
volatility by acting as a partial natural hedge
The debt maturity decision is driven by the desire to mitigate rollover risk and a
variety of other factors relating to risk transfer between debt and equity investors
The currency mix of debt is driven by the desire to reduce the risk associated with
foreign assets, cash flows and earnings as well as various market and regulatory
factors such as market depth and relative taxes
The choice between public debt and bank debt is affected by relative transaction
costs and a variety of factors relating to information asymmetries
February 2006
Survey Results
In this section we present the results of the survey pertaining to corporate debt structure.
Framing the Questions

The discussion of Theoretical and Practical Considerations lists a variety of reasons
why the structure of debt is important for corporations. To help in the interpretation of
the results, it may be useful to think about the factors that are important in the decision
making process from two perspectives:
The Risk Management Perspective: Assumes the pricing is fair. The decision on
the debt structure depends on factors that generally deal with the interaction
between the debt structure and the rest of the firm. The decision on the structure of
the debt depends on the nature of the assets of the firm. The liability manager
approaches the problem from a firm wide point of view
The Investment Management Perspective: This perspective assumes that the

pricing is not fair or, if it is fair, it assumes that the pricing does not affect the rest of
the business. This is more of an investment management perspective, where the
pricing of individual securities is the most important factor and interaction between
debt structure and the firm does not matter
What Do Firms Target?

We start by asking companies which elements of debt structure they target. Figure 5
presents the results.
27
February 2006
Figure 5: Proportion of Firms Indicating Use of Various Debt Structure Targets

74%
Fixed percent
63%
Average maturity
Percent maturing
after 1year
57%
Duration
55%
Percent bank loans
52%
Percent commercial
paper
44%
Currency Mix
44%
Year-by-year profile
42%
0%
10%
20%
30%
40%
50%
60%
70%
80%
Q4.1: "For w hich of the follow ing do you have target ranges and w hat are those ranges (post
derivatives)?" N = 178.
The most striking finding is that companies are extremely sophisticated when it comes
to thinking about debt structure. All of the elements of debt structure we proposed are
being targeted by a substantial fraction of the respondents. The element of debt
structure for which the largest fraction of firms set a target is the fixed/floating mix, with
74% of all respondents indicating that they target this element. Next is the average
maturity with 63% of the respondents having a target, followed by the fraction of debt
maturing after one year (57%), and duration (55%). The fraction of borrowing from
banks is targeted by 52% of all firms. The remaining three elements are targeted by a
substantial minority of the firms. The currency mix is targeted by 44% of all companies,
and so is the amount of borrowing in the commercial paper market. Finally, 42% of all
companies have specific targets for the year-by-year maturity profile of their debt.
These findings indicate that corporations construct very specific guidelines as to how
their debt should be managed. The next section documents what some of these
guidelines are, while subsequent sections examine in detail how companies make
decisions on four critical elements of debt structure. This is followed by an analysis of
the use of hybrids.
What Are The Targets?

For six out of the eight elements discussed above, we asked companies to specify what
their targets are. These elements are:
28
Fixed/floating mix of debt
Percentage of debt maturing after one year
Fraction of borrowing from banks
February 2006
Fraction of borrowing in the commercial paper market
Average maturity of the debt
Targeted duration of the debt
For two of the elements, the currency mix of debt and the year-by year profile of
maturing debt, it is not possible to ask for such details because they cannot be
summarized concisely. However, we will address the factors that go into deciding on
these elements in the next section.
Regarding the targets, we asked companies to provide the specific target as well as the
minimum and maximum of their target range. For those companies that did not specify a
target, but specified a range, we assumed that the target was the mid-point of the range.
Figure 6 shows the average minimum, the average target and the average maximum.
Figure 6: Target Levels
Target
Minimum
Target
Maximum
Fixed percent
40%
52%
65%
Percent maturing after 1year
46%
53%
60%
Percent bank loans
45%
50%
57%
Percent commercial paper
13%
17%
22%
Average maturity
4.8 years
6.2 years
7.9 years
Duration
3.9 years
5.6 years
7.6 years
Q4.1: "For w hich of the f ollow ing do you have target ranges and w hat are those ranges (post
derivatives)?" N = 178.
Regarding the mix of fixed and floating rate debt, firms target 52% fixed debt. The
average of the low-end of the range is 40%, while the average of the high-end is 65%.
This indicates that firms allow a fair amount of flexibility around their target.
Firms want 53% of their debt to mature after one year, with a minimum of 46% and a
maximum of 60%. Again, this implies a reasonable degree of flexibility, but the range is
certainly tighter than for the amount of fixed-rate and floating-rate debt.
In terms of bank borrowing versus borrowing from other sources, firms target 50% bank
debt, ranging from 45% to 57%. This range is narrower than for the amount of fixed rate
debt and the amount of long-term debt.
Firms target 17% of their borrowing from the commercial paper market, ranging from
13% to 22%.
The target for average maturity is 6.2 years, while it is 5.6 years for average duration.
The target maturity ranges from 4.8 years to 7.9 years, while the target duration ranges
from 3.9 years to 7.6 years.
Given that firms target an average maturity of 6.2 years, but only want 53% of their debt
to be long-term debt, the average targeted maturity of their long-term debt is more than
10 years.
29
February 2006
What Factors Are Important in Setting the Targets?

We asked companies how they decide on the mix of fixed and floating rate debt, the
maturity and currency mix of their debt, and the choice between bank debt, private debt
and capital market debt. We listed a variety of potential factors and firms ranked the
factors from 0 (Not Important) to 5 (Very important).
Fixed/floating Mix of Debt
We start by considering how firms decide on the mix between fixed and floating rate
debt.
The following figure lists the factors that affect this decision, together with the fraction of
firms that rank each of the potential factors as a 4 or 5 on a scale ranging from 0 to 5.
This is the fraction of firms that consider a factor to be important.
Figure 7: Factors Determining the Fixed/Floating Mix of Debt
Factors
% 4 or 5
Current long term rates v expectations
40%
215
Current long term rates v historical norm
37%
215
Floating cheaper on average
36%
220
Interest size relative to operations
33%
210
Fix-floating spread v expectations
31%
213
Rate volatility relative to operations
29%
209
Correlation of operations and rates
27%
216
Fix-floating spread v historical norm
26%
212
Floating rate => volatile EPS
25%
222
Ability to access markets
24%
209
Accounting consequences
16%
213
Risk to capex and dividends
15%
216
Counterparty credit exposures
10%
205
6%
213
Other companies in my industry
% 4 or 5
Q4.2: "How important are the f ollow ing f actors in deciding the proportion of your debt that should be Fixed
Rate versus Floating Rate including the impact of interest rate derivatives?"
Scale is Not Important (0) to Very Important (5).
No single factor receives support from more than 50% of the firms. This indicates that
there is a substantial degree of heterogeneity among firms in terms of what elements
they believe are important in their choice of interest rate exposure. The two factors that
receive the most support are a comparison of the current level of long-term interest
rates to expectations (40% of the respondents consider this important) and to the
historical norm (37%). Given this focus on long-term rates, this suggests that firms
decide on the fixed-floating mix and maturity structure together. If long-term rates are
low relative to what they have been or are expected to be, firms prefer to lock in fixed
rate debt.
Generally investment management considerations, which emphasize pricing and
expected movements in interest rates, dominate risk management considerations,
30
February 2006
which emphasize the relationship between assets and liabilities. Figure 8 below shows
the most important factors from Figure 7 above broken into the two perspectives.
Figure 8: Factors Determining the Fixed/Floating Mix of Debt
Investment Management Perspective
Risk Management Perspective
Factors
% 4 or 5 Rank Factors
% 4 or 5 Rank
40%
33%
37%
29%
36%
27%
31%
25%
26%
24%
10
16%
11
Risk to capex and dividends
15%
12
Q4.2: "How important are the f ollow ing f actors in deciding the proportion of your debt that should be Fixed
Rate versus Floating Rate including the impact of interest rate derivatives?"
Two factors receive little support:
Limitations due to counterparty credit exposures (10%)
What other companies in the same industry are doing (6%)
The last result is perhaps surprising. When it comes to the level of debt, firms believe
that what competitors are doing is of substantial importance,11 but this is not the case
for the fixed/floating mix. This may partly be the case because, from a competitive
perspective, debt structure is less important than the level of debt. Alternatively, firms
may not consider what other companies in their industry are doing because such data
are generally not available. If that is the case, the results of this survey will help
companies in their benchmarking exercise.
Overall, when firms make decisions on fixed/floating mix, they often consider the
liabilities by themselves without considering how these decisions interact with the
assets and cash flows of the business. Sometimes this is purely about pricing, but in a
number of cases, firms are actually comparing rates relative to expectations and to
historical norms. This suggests that the investment management perspective often
dominates the risk management perspective. We would urge firms to be cautious when
following this approach.
It is, of course, possible that the risk management perspective is employed to set the
target level and target range, while the investment management perspective allows
firms to take a view on where they want to be in this range. Nevertheless, given that the
target range is very broad (40%63%), this still provides the investment management
view a lot of leeway.
When we look at the responses across regions, the general conclusion holds: firms are
more likely to consider elements of pricing to be important in their fixed/floating decision,
rather than risk management elements. The one area where the difference between the
two perspectives is the smallest is Japan.
11
In our paper Capital Structure we report that 20% of firm consider the level of competitors debt to be
important (i.e., 4 or 5).
31
February 2006
Maturity Structure of Debt
Figure 9 lists the factors that firms consider when deciding on the maturity structure of
their debt, together with the fraction of firms that rank these factors to be important or
very important (i.e., give it a 4 or 5).
Figure 9: Factors Determining Maturity Structure of Debt
Factors
% 4 or 5
% 4 or 5
Mitigate maturity concentrations
48%
217
Assets and liabilities matching
33%
212
Market depth
33%
209
Expected slope of the yield curve
30%
208
Current slope of yield curve
29%
210
Absolute credit spreads
24%
209
Current versus expected credit risk
19%
207
Credit spreads relative to history
16%
208
Evaluated on the total interest paid
14%
216
Long-term debt => riskier projects
12%
203
Mispricing of debt
12%
208
Evaluated on the interest volatility
8%
215
Other companies in industry
7%
203
Q4.3: "How important are the f ollow ing f actors in deciding on the Maturity Structure of your debt?"
By far the most important reason is that firms choose their maturity structure such that
not too much debt matures during a particular period in time: 48% of all respondents
consider this to be important. Clearly, these firms are worried about the inability to roll
over their debt, and having a large fraction of debt mature at a particular point in time
could therefore cause a liquidity crisis, which could put the future of the firm at risk. The
second most important factor is maturity matching. One third of the respondents use the
maturity of their assets to decide on the maturity of their liabilities. This is consistent with
the view that firms may underinvest if they have to make investment decisions before
their debt matures.
Both of these factors support the risk management perspective, according to which the
structure of the liabilities depends on the assets of the firm. Other factors related to the
risk management perspective are further down the list. 19% of the participants consider
their expected credit risk when deciding on debt maturity: when they believe their
prospects will improve, they borrow short-term; if they feel their prospects will
deteriorate, they borrow long-term. What is surprising, however, is that 38% of all
respondents do not feel that this factor is important at all, by giving it a score of 0 or 1
(not reported in Figure 11). The final risk management factor receives little support: only
12% of the global CFOs feel that the conflicts that arise between the firm and its
bondholders when the firm has long-dated debt are important enough to affect debt
maturity choice. Two interpretations of this finding are possible. First, these firms feel
that it is difficult to change the risk profile of the firm to take advantage of bondholders,
perhaps because of covenants. Second, the firms do not have sufficient debt for riskchanging tactics to matter.
32
February 2006
All other factors mentioned by respondents ignore the interaction between maturity
structure and the rest of the firm. They focus on pricing, market characteristics, the
term-spread, or the evaluation of the treasury function.
After the first two risk management factors discussed earlier, the next most important
factor is market depth, i.e., the ability to borrow large amounts at specific maturities. We
do not believe that firms are ever seriously constrained in borrowing, except for very
long maturities or when they already have large amounts of debt. However, imbalances
in demand and supply at different maturities may have an impact on pricing, and firms
may therefore decide to borrow at different maturities to take advantage of these
imbalances. From a finance-theoretic perspective, this is obviously not a relevant
consideration, but the fact that it ranks third in terms of importance in our survey, does
suggest that it has a lot of merit in practice.
Next in terms of importance are measures of the term spread, i.e., the extra cost
required for long-term versus short-term borrowing. Thirty percent of the survey
respondents consider the expected slope of the yield curve to be important in their
maturity decision, while 29% look at the current slope in making their decision.
Obviously, by doing this, firms are taking a view on what they believe to be a fair term
spread. This factor is followed by the absolute credit spread at different maturities,
which is listed as important by 24% of the firms in the survey. Another 16% list the credit
spreads at different maturities, relative to their historical levels as important. All of these
considerations are purely based on pricing.
The remaining factors receive very little support from practitioners. Few firms are
concerned about differences in debt mispricing at different maturities, the fact that the
treasury function is evaluated based on the extent to which interest payments can be
locked in, or what other firms in the industry are doing.
In sum, when it comes to deciding on the maturity of their debt, most firms do take a
firm wide perspective and consider the interaction of the maturity structure with the rest
of the business. However, factors related to market depth and the term spread are also
important.
When we study the response across different regions, a small number of differences
emerge. Making sure that maturities are spread out is the most important factor
everywhere, except in Germany. Firms in Germany consider the expected slope of the
yield curve to be the most important factor, followed jointly by the current slope and
maturity concerns. It is not clear to us why this particular difference emerges, especially
because firms in Western Europe outside of Germany adhere to the global rank order.
Currency Mix of Debt
Before asking companies what factors they consider to be important when thinking
about issuing debt into a foreign currency or swapping it into a foreign currency, we
wanted to make sure that we only dealt with companies that had, at the very least,
considered this option. We therefore asked all companies whether they had issued debt
into a foreign currency, swapped into a foreign currency or considered doing so. If not,
we did not inquire any further into the factors that were important in making the decision.
57% of all respondents did indicate that they had issued or swapped into a foreign
currency or considered it. The high was 90% in Latin America, and the low was 46% in
Germany.
33
February 2006
Figure 10 lists the relevant factors and the fraction of companies considering these
factors to be important or very important.
Figure 10: Factors Determining Currency Mix of Debt
Factors
% 4 or 5
% 4 or 5
Relative interest rates
54%
125
Access to deeper capital markets
53%
125
Foreign cashflow or investment exposure
52%
122
Relative credit spreads
45%
122
Expected exchange rate movements
33%
126
Tax treatment of interest deductions
26%
121
Accounting implications
26%
121
Laws and regulations
24%
122
Tax on repatriated income or cash flows
19%
120
8%
119
Q4.5: "How important w ere the follow ing factors in your decision to issue debt in foreign currencies or sw ap
your local debt into foreign currencies?"
Three factors stand out:
Relative interest rates (considered important by 54% of the firms)
Access to deeper capital markets (53%)
Foreign cash flow or investment exposure (52%)
Very few firms consider this last factor to be unimportant. In fact, if we compute the
average response on a 6-point scale (from 0 to 5), foreign cash flow or investment
exposure actually becomes the top factor. It is surprising, however, that considerations
other than cash flow or investment exposure receive so much weight. In addition, to
relative interest rates, a substantial fraction of firms (45%) consider relative credit
spreads to be important, while one third mention expected exchange rate movements.
Thus, only one of the top five factors takes a firm wide risk management type
perspective. The other factors consider the liabilities by themselves.
The tax treatment of interest deductions, accounting implications, and laws and
regulations are important factors for about a quarter of the firms, while 19% consider the
tax on repatriated income of cash flows to be important. Finally, what other companies
in the industry are doing does not seem to matter much. This latter result mimics the
findings for the fixed/floating mix and the maturity structure of the debt.
Taken as a whole, the results on currency mix provide a mixed picture as to whether
firms take a firm-wide approach or an investment management approach. Having
foreign cash flow and/or investment exposure is clearly very important. But pricing
considerations and market size also matter a lot, and firms admit that expected
exchange rate movements are also important when they consider issuing debt in a
foreign currency.
There are substantial differences in importance of factors across different regions.
Figure 11 lists the ranking of the factors in each region.
34
February 2006
Target
All
Asia excluding Japan
Germany
Japan
Latin America
North America
Western Europe
excluding Germany
Figure 11: Factors Determining Currency Mix of Debt - Regional Ranking
Tax on repatriated income or cashflows
10
10
10
10
10
Q4.5: "How important w ere the follow ing factors in your decision to issue debt in foreign currencies or sw ap
your local debt into foreign currencies?"
Scale is Not Important (0) to Very Important (5). The regions Australia & New Zealand and Eastern Europe,
Middle East & Africa are excluded because the sample sizes are too small
See Appendix III, Q4.5 for a breakdow n of N by region.
In Asia, excluding Japan, relative interest rates are most important, followed by relative
credit spreads and expected exchange rate movements. These are all factors purely
related to pricing. Next in line is access to deeper capital markets. Foreign cash flow
and investment exposure is only fifth in terms of importance. Price related factors also
dominate in Japanforeign cash flow and investment exposure ranks only sixth. It is
surprising that Asian companies are less concerned about hedging foreign exposures
than companies elsewhere, especially in light of the Asian crisis which left a number of
firms with significant exposure to naked foreign currency debt.
Hedging foreign exposures is important in Europe, North America and Latin America.
This discrepancy in responses between companies in Asia and companies elsewhere
clearly warrants further investigation.
Not surprisingly, given the size of the capital market in North America, accessing deeper
capital markets is relatively unimportant for companies from this region. In Latin
America, on the other hand, accessing larger capital markets is the top reason for
issuing foreign currency debt.
Except for the result on access to deeper capital markets, which can be explained by
the size of the capital market of the home region, understanding why there are
substantial differences across regions in the factors that affect the decision to issue
foreign currency debt clearly requires more analysis.
35
February 2006
Source of Debt
In this section we investigate how firms decide on whom to borrow from. Figure 12 lists
all the factors in order of importance, where a factor is considered important if firms give
it a 4 or 5 on a scale from 0 to 5.
Figure 12: Factors Determining Source of Debt
Factors
% 4 or 5
% 4 or 5
63%
228
56%
227
Covenants
53%
225
Transaction costs
47%
225
Documentation and disclosure
41%
224
Speed of execution
40%
225
Customization of borrowing terms
33%
215
Prior experience
32%
219
Signals to capital markets
31%
222
Need to obtain a rating
28%
225
Signal to competitors and customers
18%
217
9%
220
Other companies in rating category
8%
217
Q4.6: "How important are the follow ing factors in your choice betw een bank debt, privately placed debt, and
publicly issued debt?"
The relative credit spread is the most important factor; above everything else, firms
choose to borrow where it is cheapest, with 63% of the survey participants indicating
that this factor is important. Access to a larger capital market or a new investor base is
considered important by 56% of all respondents. The covenants associated with the
type of borrowing are important for 53% of respondents. Thus, firms are concerned that
covenants, often associated with bank financing, may well limit their freedom to take
decisions in the future. Next in line are a series of direct and indirect transaction costs.
The direct transaction costs are considered to be important by 47% of the survey
participants, the documentation and disclosure requirements are listed by 41% of the
participants, while the speed of execution is important for 40% of the respondents.
One third of the firms value the ability to customize borrowing terms, which is generally
a hallmark of bank borrowing. Prior experience is listed by 32% of the firms as being
important, while 31% are concerned with the signal provided to capital markets. Finally,
28% mention the need to obtain a rating as an important consideration. Relatively
unimportant are the signal provided to customers and competitors, and especially the
behavior of other companies with the same rating or in the industry.
In sum, there is some support for the theoretical factors previously discussed, but it is
certainly not overwhelming. Firms are mainly concerned with cost and access to larger
capital markets, factors with less theoretical relevance. They do care about the
covenants and measures of direct and indirect transaction costs, consistent with the
theoretical discussion. The signal sent to capital markets receives only modest support
as a factor that firms take into account in deciding where to go for debt financing.
36
February 2006
Hybrid Securities
The final elements of debt structure we report on is actually broader than the previous
elements in that it deals with hybrid structures, which contain elements of both debt and
equity instruments. The goal of this section is to document what fraction of firms have
issued hybrid securities and why they have done so. 74 firms indicated that they have at
least one type of hybrid security in their capital structure. Of those 74, the following
figure illustrates the types of securities being employed.
Figure 13: Use of Hybrid Securities
Convertible debt
64%
Preferred or preference shares (nonconvertible)
26%
Units consisting of debt with warrants
20%
Share of listed subsidiary
14%
Convertible preferred or preference shares
14%
Separately issued warrants
8%
Mandatory convertible securities
5%
Supervoting shares
3%
Trust preferred securities
2%
Capped appreciation preferred shares
2%
0%
10%
20%
30%
40%
50%
60%
70%
Q3.10: "Has your firm issued equities or equity-related securities w ith the follow ing features?" N = 66.
Convertible bonds are by far the most popular hybrid; 64% of all firms that issued
hybrids have employed convertible bonds. This is followed by preferred or preference
shares, which are employed by 26% of all hybrid users, and debt with warrants
employed by 20% of hybrid users. Two other structures are used by 10% or more of the
hybrid issuers: convertible preferreds or preference shares (14%) and the separate
issue of subsidiary shares (14%). All other structures, some of which are newly
developed products, are used only sporadically. This does not imply that these products
do not have features that appeal to a broader set of companies, but simply that they
have been developed relatively recently.
We now turn to the factors firms take into account when deciding on the issuance of
hybrid securities. The following figure lists the factors we proposed, together with the
average response on a 6 point scale, where 0 indicates not important and 5 indicates
very important. We also list the fraction of respondents who assign a factor a score of 4
or 5.
37
Factors
February 2006
Figure 14: Factors Determining Hybrid Usage

_
x % 4 or 5 N
Attractive pricing as an issuer
3.0
53%
60
Seeking to broaden base of investors
2.6
44%
57
Risk-return preferences of new investors
2.3
30%
57
Rating Agencies equity credit
2.1
26%
58
Accounting considerations
1.8
17%
58
Limited capacity for regular equity
1.7
17%
54
Tax considerations
1.6
14%
56
Constraints from existing investors
1.6
18%
55
Regulatory considerations
1.5
13%
56
Listing requirements
1.4
14%
56
Governance preferences of new investors
1.3
13%
55
Q3.11: "If so, w hich factors w ere more important in your decision to issue multiple classes of equity
securities or equity-linked securities?"
Pricing is the most important factor, with an average score of 3.0; in addition, 53% of the
respondents consider pricing to be important. Thus, while there is a strong academic
view that new securities will be priced fairly, this is not supported by the survey
respondents. The second factor in terms importance is also one that has less academic
backing, namely broadening the investor base. It receives an average score of 2.6 and
44% of the respondents believe it to be important.
Next in line is trying to meet risk-return preferences of a particular set of investors. It
receives an average score of 2.3, which is not very high. However, 30% of all
respondents rank it in the highest two categories, which implies that this explanation
has some merit. Meeting the risk-return preferences of a particular set of investors is
essentially a transaction cost type motive. Given the number of securities available,
most investors are able to combine securities into a portfolio such that they can obtain
any type of desired payoff structure. But doing so may be very costly and require
dynamic portfolio adjustments. If a number of features desired by a certain group of
investors can be combined into a single security, this may substantially reduce the
transactions costs investors have to incur in order to obtain their desired payoff
structure.
Getting equity credit with the rating agencies also has merit; 26% of the survey
participants believe this to be an important consideration, but the average score of 2.1 is
rather modest. Other factors, such as responding to constraints imposed by existing
investors, tax, accounting and regulatory considerations, listing requirements or meeting
governance and control preferences of new investors receive very little support.
Overall, there is only limited support for the academic views on hybrid securities, which
mainly relate to transaction costs, taxes, information and regulation. Only the
transaction cost argument receives modest support. Instead, firms are more concerned
about pricing and broadening their investor base.
38
February 2006
Summary
Firms are very sophisticated when it comes to deciding on debt structure. More than
half of the firms have specific targets for fixed/floating mix, short-term/long-term
debt, average maturity, duration, and the fraction of borrowing done from the
banking sector
Pricing is the most important element when considering debt structure and the
issuance of hybrids
Firms consider current pricing as well as current prices relative to expectations

and relative to historical norms. As such, firms often take a view on future price
movements when structuring their debt
Firms often decide on the structure of their debt without fully considering the
firms assets. This is especially the case when firms decide on the fixed/floating
mix of debt
When it comes to deciding on maturity structure and debt currency mix, the
structure of the firms assets is more important, but even for those elements of
debt structure, pricing factors receive a lot of weight
Overall, the link between academic and practitioner considerations is weaker than
anticipated
39
February 2006
Appendices
40
February 2006
Appendix I: References
Brealey, M., S. Myers and F. Allen. 2005. Principals of Corporate Finance. 8th Ed.
McGraw Hill/Irwin
Flannery, M. J. 1986. Asymmetric information and risky debt maturity choice. Journal of
Finance 41, 1937.
Denis, D. J. and V. T. Mihov. 2003. The choice among bank debt, non-bank private debt,
and public debt: Evidence from new borrowing. Journal of Financial Economics 70, 3
28.
Diamond, D. W. 1991a. Debt maturity structure and liquidity risk. Quarterly Journal of
Economics 106, 709737.
Diamond, D.W. 1991b. Monitoring and reputation: The choice between bank loans and
directly placed debt. Journal of Political Economy 99, 689721.
James, C. M. 1987. Some evidence on the uniqueness of bank loans. Journal of
Financial Economics 19, 217235.
Lummer, S. L. and J. J. McConnell. 1989. Further evidence on the bank lending process
and the capital-market response to bank loan agreements. Journal of Financial
Mikkelson, W. H. and M. M. Partch. 1986. Valuation effects of security offerings and the
issuance process. Journal of Financial Economics 15, 3160.
Myers, S. C. 1977. Determinants of corporate borrowing. Journal of Financial
Rajan, R. 1992. Insiders and outsiders: the choice between informed and arms-length
debt. Journal of Finance 47, 13671406.
41
February 2006
Appendix II: Detailed Results

In this Appendix we present the results of the questions asked in the Structure of Debt
section, plus other relevant questions and full segmental breakdowns.
x denotes the median.

As before, the symbol x denotes the mean of a dataset, while ~
N denotes the size of the dataset. All questions in the survey were optional and some
questions were not asked directly, depending on the answers to previous questions.
Therefore, the number of responses, N, to different questions varies and is shown for
each question.
This was an anonymous survey and to further protect the confidentiality of participants,
results are shown on an aggregated basis and the statistics are only displayed if there
are at least 5 datapoints in the sub-sample. Sub-samples without five datapoints are
marked <5 and the statistics are shown as na.
42
February 2006
4.1: Debt Structure Targets by Region, Ratings and Listing

Question:
For which of the following do you have target ranges and what are those ranges (post derivatives)?
Fixed-Floating
Duration
Percent Maturing in One

Year
Average Maturity
Percent Commercial
Paper
Percent Bank Debt
Currency Mix
Year by Year Profile
74%
55%
57%
63%
44%
52%
44%
42%
178
20%
17%
19%
22%
19%
20%
9%
9%
90
Australia & New Zealand
8%
5%
4%
3%
1%
1%
5%
7%
76
Eastern Europe, Middle East and Germany
1%
1%
1%
3%
1%
1%
0%
1%
76
Germany
23%
15%
15%
16%
11%
15%
14%
15%
93
Japan
7%
7%
7%
7%
4%
7%
1%
0%
84
Latin America
12%
9%
10%
12%
8%
9%
9%
9%
77
North America
25%
14%
15%
13%
14%
13%
7%
14%
85
Western Europe excluding Germany
40%
31%
31%
38%
23%
28%
31%
23%
121
Undisclosed
1%
1%
1%
1%
1%
1%
1%
0%
76
Investment Grade
47%
28%
32%
33%
26%
29%
27%
25%
112
Non-investment Grade
22%
14%
15%
16%
12%
14%
12%
12%
86
Not Rated
3%
3%
4%
1%
1%
1%
1%
3%
76
Undisclosed
45%
41%
38%
47%
30%
37%
29%
27%
129
Listed
66%
44%
47%
52%
38%
45%
37%
38%
146
Not Listed
34%
32%
31%
34%
21%
26%
22%
19%
107
Undisclosed
0%
0%
0%
0%
0%
0%
0%
0%
75
All
Region
Ratings
Listing
43
February 2006

Question:
For which of the following do you have target ranges and what are those ranges (post derivatives)?
Average Maturity
Percent Commercial
Paper
Percent Bank Debt
Currency Mix
Year by Year Profile
63%
44%
52%
44%
42%
178
1%
1%
3%
3%
0%
0%
78
1%
3%
1%
3%
4%
3%
78
6%
7%
7%
6%
5%
5%
4%
84
24%
24%
23%
25%
21%
20%
15%
20%
87
Consumer Finance
4%
5%
5%
4%
3%
5%
0%
0%
80
Diversified & Conglomerates
0%
1%
0%
4%
0%
0%
3%
3%
76
Health Care & Pharmaceuticals
6%
3%
4%
4%
3%
4%
3%
4%
77
Industrials and Materials
31%
25%
23%
27%
17%
23%
20%
21%
95
Media
6%
4%
4%
2%
2%
4%
5%
1%
82
Metals & Mining
5%
3%
4%
4%
4%
4%
1%
1%
79
Oil & Gas
11%
5%
11%
9%
5%
6%
8%
6%
80
Technology
11%
9%
10%
10%
5%
9%
8%
5%
80
Telecommunications
5%
4%
4%
5%
4%
4%
4%
4%
78
Transportation Services
15%
9%
8%
9%
7%
7%
9%
6%
85
Utilities
10%
5%
6%
9%
6%
6%
6%
5%
81
Undisclosed & Other
10%
8%
7%
8%
7%
8%
2%
6%
83
Duration
57%
Fixed-Floating
Percent Maturing in One

Year
74%
55%
Automobiles
4%
3%
Business Services
4%
1%
Chemicals
10%
Consumer
All
Industry
44
February 2006
4.2: Factors Affecting Fixed-Floating Mix

Question:
How important are the following factors in deciding the proportion of your debt that should be Fixed Rate versus Floating Rate including the impact of interest rate derivatives?
Results of Question 4.2: Factors Affecting Fixed-Floating Mix
Not Important
Very Important
~x
21%
16%
17%
21%
20%
5%
2.2
2.0
222
Risk to cap exp and dividends
28%
24%
17%
16%
13%
2%
1.7
1.0
216
10%
6%
25%
23%
24%
12%
2.8
3.0
220
13%
12%
22%
27%
19%
7%
2.5
3.0
212
10%
12%
21%
26%
24%
7%
2.6
3.0
213
9%
6%
17%
31%
28%
9%
2.9
3.0
215
9%
9%
16%
26%
28%
12%
2.9
3.0
215
13%
18%
20%
22%
17%
10%
2.4
2.0
216
13%
12%
18%
24%
23%
10%
2.6
3.0
210
13%
14%
19%
25%
19%
10%
2.5
3.0
209
27%
31%
17%
16%
6%
3%
1.5
1.0
205
34%
29%
20%
12%
4%
1%
1.3
1.0
213
26%
19%
20%
18%
12%
5%
1.8
2.0
213
30%
14%
17%
15%
18%
6%
2.0
2.0
209
45
February 2006
4.2: Factors Affecting Fixed-Floating Mix by Region

Question:
~x
~x
~x
~x
~x
~x
~x
~x
~x
Undisclosed
Western Europe
excluding Germany
North America
Latin America
Japan
Germany
Eastern Europe,
Middle East & Africa
Australia & New

Zealand
All
Results of Question 4.2: Factors Affecting Fixed-Floating Mix by Region
~x
2.2 2.0 222 2.6 3.0 34 2.7 3.0 6
na na <5 1.6 1.0 46 2.5 3.0 17 1.8 1.5 10 2.6 3.0 25 2.1 2.0 79 na na <5
1.7 1.0 216 2.5 2.0 33 0.7 1.0 6
na na <5 1.2 1.0 47 2.2 2.5 16 2.6 3.0 9 1.6 1.0 25 1.5 1.0 75 na na <5
2.8 3.0 220 2.7 3.0 33 2.3 2.0 6
na na <5 2.5 3.0 48 2.8 3.0 18 3.0 4.0 9 3.5 4.0 25 2.9 3.0 76 na na <5
2.5 3.0 212 3.2 3.5 32 2.7 2.5 6
na na <5 1.8 2.0 46 2.9 3.0 16 3.2 3.0 9 2.6 2.0 25 2.4 2.5 74 na na <5
2.6 3.0 213 3.4 4.0 33 3.3 4.0 6
na na <5 2.1 2.0 45 2.8 3.0 16 3.7 4.0 9 2.6 2.0 25 2.4 3.0 74 na na <5
2.9 3.0 215 3.3 3.0 34 2.8 2.5 6
na na <5 2.7 3.0 45 3.1 3.0 17 3.9 4.0 9 2.9 3.0 25 2.8 3.0 75 na na <5
2.9 3.0 215 3.5 4.0 34 3.5 4.0 6
na na <5 2.3 2.0 45 3.0 3.0 16 4.2 4.0 9 2.7 3.0 25 2.9 3.0 75 na na <5
2.4 2.0 216 3.0 3.0 33 2.0 1.5 6
na na <5 1.7 1.0 45 2.3 2.0 16 3.1 3.5 10 2.4 2.0 25 2.6 3.0 76 na na <5
2.6 3.0 210 3.2 3.0 34 3.2 3.0 6
na na <5 2.0 2.0 44 3.0 3.0 16 3.0 3.0 9 2.5 2.0 22 2.6 3.0 74 na na <5
2.5 3.0 209 3.2 3.0 33 2.8 3.0 6
na na <5 2.0 2.0 44 2.6 2.5 16 3.2 4.0 9 2.7 2.5 22 2.4 3.0 75 na na <5
1.5 1.0 205 2.6 3.0 32 1.0 1.0 6
na na <5 1.1 1.0 45 2.3 2.0 16 1.9 1.0 9 1.2 1.0 22 1.3 1.0 72 na na <5
1.3 1.0 213 1.5 1.0 33 1.3 1.0 6
na na <5 1.0 1.0 45 1.6 2.0 16 1.8 2.0 10 1.8 1.5 24 1.1 1.0 74 na na <5
1.8 2.0 213 2.4 3.0 33 1.3 1.5 6
na na <5 1.4 1.0 43 2.4 2.0 17 1.9 2.0 10 1.8 2.0 24 1.8 2.0 75 na na <5
2.0 2.0 209 3.2 4.0 33 2.0 2.0 6
na na <5 1.7 1.0 43 2.1 2.0 17 1.7 1.5 10 1.7 2.0 24 1.6 1.0 71 na na <5
Means and Medians in Percent
46
February 2006
4.2: Factors Affecting Fixed-Floating Mix by Industry

Question:
~x
~x
~x
~x
~x
~x
~x
~x
~x
~x
~x
~x
~x
~x
~x
Undisclosed & Other
Utilities
Transportation
Services
Telecommuni cations
Technology
Oil and Gas
Metals and Mining
Media
Industrials and
Materials
Health Care &

Pharmaceuticals
Diversified/Conglo
merates
Consumer Finance
Consumer
Chemicals
Automobiles
All
Business Services
Results of Question 4.2: Factors Affecting Fixed-Floating Mix by Industry
~x
~x
2.2 2.0 222 1.4 1.0 7 3.2 3.5 6 1.8 2.0 16 2.4 3.0 35 na na <5 1.8 3.0 5 1.9 1.5 10 2.0 2.0 47 1.3 1.0 9 1.0 1.0 7 2.6 3.0 12 1.8 2.0 13 2.1 2.0 7 2.8 3.0 16 3.6 4.0 12 1.7 1.5 16
1.7 1.0 216 0.7 0.0 7 1.8 1.5 6 1.2 1.0 16 2.0 2.0 33 na na <5 1.6 2.0 5 1.6 1.0 10 1.7 1.0 46 0.8 0.0 9 1.3 0.0 7 2.2 2.5 12 2.1 2.0 13 2.0 2.0 7 1.9 2.0 14 1.9 1.5 10 1.5 1.0 17
2.8 3.0 220 2.9 3.0 8 3.7 4.0 6 3.2 3.0 15 2.9 3.0 35 3.0 3.0 5 2.2 2.0 5 2.9 2.5 10 2.6 3.0 46 3.4 4.0 9 3.3 4.0 7 3.2 2.5 12 2.8 3.0 13 2.9 4.0 7 2.5 3.0 15 2.6 2.5 10 2.2 3.0 17
2.5 3.0 212 2.6 3.0 7 2.8 3.0 6 2.1 2.0 15 2.8 3.0 33 na na <5 1.4 1.0 5 2.3 2.0 10 2.5 3.0 46 2.3 2.0 9 2.0 1.5 6 3.2 3.0 12 2.9 3.0 13 2.7 3.0 7 2.1 2.0 14 3.1 3.0 9 1.8 1.0 17
2.6 3.0 213 2.6 3.0 7 3.0 3.0 6 2.0 2.0 15 3.0 3.0 33 na na <5 2.8 4.0 5 2.4 3.0 10 2.4 3.0 46 2.9 3.5 10 2.1 2.0 7 3.8 4.5 12 2.6 3.0 13 2.1 2.0 7 2.6 3.0 15 2.8 3.0 9 2.5 3.0 15
2.9 3.0 215 2.9 3.0 7 2.8 3.0 6 2.8 3.0 16 3.1 3.0 34 na na <5 2.2 2.0 5 2.5 2.5 10 2.9 3.0 46 2.3 2.0 9 2.4 2.0 7 3.3 3.0 12 2.9 3.0 13 3.0 3.0 7 3.1 3.0 15 3.1 3.0 10 2.9 4.0 15
2.9 3.0 215 2.6 3.0 7 3.2 3.0 6 2.6 3.0 16 3.1 3.0 35 na na <5 3.8 4.0 5 2.4 2.5 10 2.8 3.0 46 2.8 3.0 9 2.1 2.0 7 3.5 3.0 12 2.9 3.0 13 2.6 2.0 7 3.3 4.0 15 3.1 3.0 9 2.6 4.0 15
2.4 2.0 216 1.9 2.0 7 3.3 4.0 6 2.3 2.0 16 2.5 3.0 35 na na <5 2.4 2.0 5 1.3 1.0 10 2.3 2.0 46 2.3 2.0 9 2.3 2.0 7 2.8 3.0 12 2.8 3.0 13 2.4 3.0 7 3.0 3.0 15 2.9 3.0 10 2.3 2.0 15
2.6 3.0 210 1.7 2.0 7 3.8 4.0 6 2.2 2.0 15 2.6 3.0 34 na na <5 2.8 3.0 5 1.7 1.5 10 2.3 2.0 43 2.6 2.5 10 3.3 4.0 7 3.2 3.0 12 3.0 3.0 13 3.0 3.0 7 2.9 3.0 15 3.1 3.0 9 2.4 2.5 14
2.5 3.0 209 1.9 2.0 7 3.8 4.0 6 2.0 2.0 16 2.7 3.0 32 na na <5 2.8 3.0 5 1.4 1.0 10 2.5 2.0 44 2.1 2.0 10 2.9 4.0 7 2.6 3.0 12 2.7 3.0 13 2.4 2.0 7 2.9 3.0 14 3.2 4.0 9 2.5 3.0 14
1.5 1.0 205 1.9 2.0 8 2.0 1.5 6 1.0 1.0 15 1.4 1.0 33 na na <5 1.0 0.0 5 1.6 1.5 10 1.5 1.0 42 0.4 0.0 8 0.9 1.0 7 1.6 1.0 12 2.5 3.0 13 2.1 2.0 7 1.2 1.0 13 1.9 1.0 9 1.7 1.5 14
1.3 1.0 213 1.4 1.0 7 1.0 1.0 6 1.1 1.0 15 1.3 1.0 34 na na <5 0.2 0.0 5 1.1 1.0 10 1.2 1.0 45 0.9 1.0 10 0.6 1.0 7 1.8 2.0 12 1.7 2.0 13 1.7 2.0 7 1.7 2.0 15 2.2 2.0 9 0.7 1.0 15
1.8 2.0 213 2.2 2.0 6 3.7 4.5 6 1.9 2.0 15 1.4 1.0 33 na na <5 1.4 1.0 5 2.7 2.5 10 1.8 2.0 45 1.4 1.5 10 0.7 1.0 7 1.5 2.0 12 2.3 2.0 13 1.9 2.0 7 1.7 2.0 15 2.8 2.5 10 1.4 1.0 15
2.0 2.0 209 1.8 1.0 6 2.6 2.0 5 1.6 1.0 15 1.9 2.0 33 na na <5 na na <5 1.2 1.5 10 1.8 2.0 45 2.2 2.0 9 0.9 0.0 7 1.7 1.5 12 3.2 4.0 13 2.7 3.0 7 1.5 2.0 15 2.0 2.0 9 2.1 2.0 15
47
February 2006
4.2: Factors Affecting Fixed-Floating Mix by Ratings and Listing

Question:
Results of Question 4.2: Factors Affecting Fixed-Floating Mix by Ratings and Listing
~x
~x
~x
~x
~x
~x
Undisclosed
Not Listed
Listed
Undisclosed
Listing
Not Rated
Non-investment
Grade
All
Investment Grade
Ratings
~x
~x N
2.2 2.0 222 2.4 2.0 75 2.6 3.0 26 2.6 3.0 5 1.9 1.5 116 2.5 3.0 149 1.5 1.0 71 na na <5
1.7 1.0 216 1.5 1.0 73 2.3 2.5 26 1.8 1.0 5 1.7 1.0 112 1.9 2.0 143 1.3 1.0 71 na na <5
2.8 3.0 220 3.2 3.0 74 3.0 3.0 26 2.8 3.0 5 2.5 3.0 115 3.0 3.0 146 2.4 2.0 72 na na <5
2.5 3.0 212 2.6 3.0 71 2.6 3.0 26 2.4 2.0 5 2.4 3.0 110 2.6 3.0 142 2.3 2.0 68 na na <5
2.6 3.0 213 2.6 3.0 71 2.4 3.0 25 2.4 2.0 5 2.7 3.0 112 2.6 3.0 142 2.7 3.0 69 na na <5
2.9 3.0 215 3.0 3.0 72 3.0 3.0 25 3.0 3.0 5 2.8 3.0 113 3.0 3.0 143 2.7 3.0 70 na na <5
2.9 3.0 215 2.8 3.0 71 2.8 3.0 25 4.2 4.0 5 2.9 3.0 114 2.9 3.0 143 2.9 3.0 70 na na <5
2.4 2.0 216 2.7 3.0 73 2.2 2.0 25 2.8 3.0 5 2.3 2.0 113 2.6 3.0 144 2.2 2.0 70 na na <5
2.6 3.0 210 2.8 3.0 69 2.8 3.0 24 3.0 4.0 5 2.5 3.0 112 2.8 3.0 141 2.3 2.0 68 na na <5
2.5 3.0 209 2.7 3.0 69 2.9 3.0 24 2.6 3.0 5 2.4 2.0 111 2.7 3.0 138 2.2 3.0 70 na na <5
1.5 1.0 205 1.3 1.0 70 1.9 2.0 24 2.0 2.0 5 1.6 1.0 106 1.7 1.0 136 1.3 1.0 67 na na <5
1.3 1.0 213 1.6 1.0 71 1.9 2.0 25 1.4 1.0 5 1.0 1.0 112 1.6 1.0 141 0.8 0.0 70 na na <5
1.8 2.0 213 1.9 2.0 70 2.2 2.0 25 2.6 2.0 5 1.7 1.0 113 2.1 2.0 143 1.2 0.5 68 na na <5
2.0 2.0 209 1.8 2.0 71 2.4 3.0 25 2.8 4.0 5 1.9 2.0 108 2.2 2.0 140 1.5 1.0 67 na na <5
48
February 2006
4.3: Factors Affecting Maturity Structure

Question:
How important are the following factors in deciding on the Maturity Structure of your debt?
Results of Question 4.3: Factors Affecting Maturity Structure
Not Important
Very Important
~x
38%
21%
18%
15%
6%
3%
1.4
1.0
215
26%
17%
19%
24%
11%
3%
1.9
2.0
216
12%
12%
20%
27%
22%
7%
2.6
3.0
210
13%
11%
18%
28%
21%
9%
2.6
3.0
208
8%
7%
15%
21%
30%
18%
3.1
3.0
217
Mispricing of debt
23%
26%
19%
20%
10%
2%
1.8
2.0
208
18%
20%
23%
20%
15%
4%
2.1
2.0
207
14%
14%
21%
27%
20%
4%
2.4
3.0
209
16%
15%
27%
26%
14%
2%
2.1
2.0
208
Market depth
13%
11%
19%
24%
23%
9%
2.6
3.0
209
35%
20%
19%
14%
10%
2%
1.5
1.0
203
11%
15%
19%
22%
19%
14%
2.7
3.0
212
31%
31%
18%
13%
4%
2%
1.4
1.0
203
49
February 2006
4.3: Factors Affecting Maturity Structure by Region

Question:
~x
~x
~x
~x
~x
~x
~x
~x
~x
Undisclosed
Western Europe
excluding Germany
North America
Latin America
Japan
Germany
Eastern Europe,
Australia & New

Zealand
All
Results of Question 4.3: Factors Affecting Maturity Structure by Region
~x
1.4 1.0 215 2.6 3.0 30 1.2 1.0 6
na na <5 1.2 1.0 45 1.8 2.0 20 1.1 1.0 10 0.8 0.0 23 1.2 1.0 76 na na <5
1.9 2.0 216 2.8 3.0 31 3.3 3.5 6
na na <5 1.6 1.0 45 2.0 2.0 20 1.6 1.0 10 1.5 1.0 23 1.6 2.0 76 na na <5
2.6 3.0 210 3.2 3.5 30 2.8 2.5 6
na na <5 2.4 2.0 43 3.0 3.0 20 2.9 3.0 8 2.9 3.0 22 2.1 2.0 76 na na <5
2.6 3.0 208 3.4 4.0 30 3.0 3.0 6
na na <5 2.6 3.0 44 2.8 3.0 20 3.4 3.0 8 2.7 3.0 23 2.0 2.0 73 na na <5
3.1 3.0 217 3.7 4.0 33 2.7 2.5 6
na na <5 2.2 2.0 43 3.7 4.0 21 4.1 4.0 10 3.9 4.0 23 2.9 3.0 77 na na <5
Mispricing of debt
1.8 2.0 208 2.6 3.0 30 1.0 1.0 6
na na <5 1.1 1.0 42 2.3 2.0 20 2.3 2.0 9 1.7 1.0 23 1.6 1.0 74 na na <5
2.1 2.0 207 2.8 3.0 31 1.8 1.5 6
na na <5 2.0 2.0 42 2.5 2.5 20 2.7 2.0 9 1.8 2.0 23 1.7 2.0 73 na na <5
2.4 3.0 209 3.2 3.0 31 2.3 3.0 6
na na <5 2.0 2.0 43 2.6 3.0 20 3.3 4.0 9 1.8 1.0 23 2.2 2.0 74 na na <5
2.1 2.0 208 3.1 3.0 31 1.8 1.5 6
na na <5 1.9 2.0 43 2.4 2.0 20 2.9 3.0 9 1.9 2.0 23 1.8 2.0 73 na na <5
Market depth
2.6 3.0 209 3.2 3.0 31 3.3 3.5 6
na na <5 2.0 2.0 43 3.1 3.0 20 3.2 4.0 9 2.7 3.0 23 2.4 2.5 74 na na <5
1.5 1.0 203 2.6 3.0 30 0.2 0.0 5
na na <5 1.0 1.0 42 2.2 2.0 19 2.1 2.0 9 0.9 0.0 23 1.4 1.0 72 na na <5
2.7 3.0 212 3.7 4.0 32 2.3 2.5 6
na na <5 2.2 2.0 43 2.5 3.0 20 3.8 4.0 9 2.1 2.0 23 2.7 3.0 75 na na <5
1.4 1.0 203 2.0 2.0 30 1.0 1.0 6
na na <5 0.8 0.0 41 1.9 2.0 19 2.2 2.0 9 1.4 1.0 22 1.2 1.0 72 na na <5
50
February 2006
4.3: Factors Affecting Maturity Structure by Industry

Question:
~x
~x
~x
~x
~x
~x
~x
~x
~x
~x
~x
~x
~x
~x
~x
Undisclosed & Other
Utilities
Transportation
Services
Telecommuni cations
Technology
Oil and Gas
Metals and Mining
Media
Industrials and
Materials
Health Care &

Pharmaceuticals
Diversified/Conglo
merates
Consumer Finance
Consumer
Chemicals
Automobiles
All
Business Services
Results of Question 4.3: Factors Affecting Maturity Structure by Industry
~x
~x
1.4 1.0 215 1.3 0.5 8 2.5 2.5 6 0.9 0.0 15 1.1 0.5 34 2.2 2.0 5 1.5 0.5 6 1.3 0.5 10 1.2 1.0 45 0.6 0.0 9 1.4 1.0 7 1.8 1.5 12 2.3 3.0 13 1.5 1.0 6 1.3 1.0 14 2.1 2.0 10 1.1 1.0 15
1.9 2.0 216 1.5 0.0 8 2.2 2.0 6 1.5 1.0 15 2.0 2.5 34 3.0 3.0 5 1.8 1.5 6 1.5 1.0 10 1.7 2.0 45 1.4 1.0 9 2.0 2.0 7 1.8 2.0 12 2.9 3.0 13 1.8 2.0 6 1.9 2.0 15 2.0 2.5 10 1.5 2.0 15
2.6 3.0 210 2.9 3.0 7 3.5 4.0 6 2.4 2.0 15 2.6 3.0 34 3.8 3.5 6 2.5 3.0 6 2.0 2.5 10 2.1 2.0 45 1.9 1.0 9 3.1 4.0 7 3.1 3.0 12 3.1 3.5 12 2.7 3.5 6 2.7 3.0 13 2.4 2.0 8 2.6 3.0 14
2.6 3.0 208 3.4 4.0 7 2.7 2.5 6 2.7 3.0 15 2.5 3.0 33 3.8 4.0 5 3.2 4.0 5 1.8 1.5 10 2.1 2.0 44 1.9 1.5 10 3.2 4.0 6 3.2 3.0 12 2.9 3.0 13 2.5 3.0 6 3.0 3.0 13 3.0 3.0 9 2.6 3.0 14
3.1 3.0 217 2.6 3.0 7 3.7 3.5 6 2.5 3.0 16 2.8 3.0 35 3.8 4.0 6 2.5 2.5 6 3.4 4.0 10 2.9 3.0 44 3.2 3.0 9 3.0 4.0 7 3.8 4.0 12 3.4 4.0 13 3.8 4.0 6 3.5 4.0 15 3.5 4.0 11 3.0 3.0 14
Mispricing of debt
1.8 2.0 208 1.1 1.0 7 2.0 1.5 6 1.6 1.0 15 1.5 1.0 34 2.8 3.0 6
na na <5 2.1 2.0 10 1.3 1.0 44 1.7 2.0 9 2.0 2.0 7 2.3 2.5 12 2.8 3.0 13 2.0 2.5 6 1.6 1.0 13 2.4 2.0 9 1.6 1.5 14
2.1 2.0 207 1.9 2.0 7 2.2 2.0 6 1.5 2.0 15 2.3 2.0 33 2.6 2.0 5
na na <5 2.1 2.0 10 1.6 2.0 44 1.3 1.0 9 2.6 3.0 7 2.2 2.0 12 2.5 3.0 13 2.3 2.5 6 2.6 3.0 13 2.8 3.0 9 2.2 3.0 14
2.4 3.0 209 2.4 3.0 7 2.5 2.5 6 2.3 2.0 15 2.6 3.0 33 3.3 3.5 6 3.2 3.0 5 1.8 1.0 10 1.7 2.0 43 1.6 2.0 10 3.0 3.0 7 2.9 3.0 12 2.8 3.0 13 2.5 3.0 6 2.4 3.0 13 2.8 3.0 9 2.4 3.0 14
2.1 2.0 208 1.9 2.0 7 2.3 2.5 6 2.4 2.0 15 2.3 2.0 32 2.8 3.0 5 3.0 3.0 5 1.9 2.0 10 1.6 2.0 43 1.6 2.0 10 2.4 3.0 7 2.4 2.5 12 2.8 3.0 13 2.2 2.5 6 1.9 2.0 14 2.8 3.0 9 2.1 2.0 14
Market depth
2.6 3.0 209 1.9 2.0 7 3.3 4.0 6 2.1 2.0 15 2.9 3.0 33 3.4 4.0 5 2.0 2.5 6 2.5 2.0 10 2.1 2.0 42 2.7 3.0 10 2.6 3.0 7 2.9 3.0 12 3.2 3.0 13 3.3 3.5 6 3.2 3.0 13 3.0 3.0 10 2.3 2.5 14
1.5 1.0 203 0.9 1.0 7 1.2 0.5 6 0.8 0.0 15 1.6 1.5 32 2.4 2.0 5 0.6 0.0 5 1.2 1.0 10 1.3 1.0 43 1.3 0.0 8 1.6 1.0 7 2.2 2.0 12 2.7 3.0 13 1.8 1.5 6 1.1 1.0 12 2.3 2.0 8 1.4 1.5 14
2.7 3.0 212 1.9 1.0 7 3.0 2.5 6 2.5 2.0 16 2.5 3.0 34 3.0 3.0 5 1.8 0.0 5 2.5 3.0 10 2.7 3.0 45 1.3 1.0 8 1.7 1.0 7 3.3 3.0 12 3.2 3.5 12 2.2 2.5 6 3.3 4.0 13 3.8 4.0 12 2.7 3.0 14
1.4 1.0 203 1.2 0.5 6 1.0 1.0 6 1.4 1.5 14 1.3 1.0 34 2.8 3.0 5 0.8 0.0 5 1.0 1.0 9 0.9 1.0 43 1.0 1.0 9 0.7 1.0 6 2.1 2.0 11 2.2 2.0 13 2.0 2.0 6 1.8 2.0 13 2.1 2.0 9 0.9 1.0 14
51
February 2006
4.3: Factors Affecting Maturity Structure by Ratings and Listing

Question:
Results of Question 4.3: Factors Affecting Maturity Structure by Ratings and Listing
~x
~x
~x
~x
~x
~x
Undisclosed
Not Listed
Listed
Undisclosed
Listing
Not Rated
Non-investment
Grade
All
Investment Grade
Ratings
~x
~x N
1.4 1.0 215 1.3 1.0 73 1.3 1.0 25 2.0 2.0 5 1.4 1.0 112 1.4 1.0 145 1.3 1.0 69 na na <5
1.9 2.0 216 1.8 2.0 73 1.8 2.0 25 2.0 2.0 5 1.9 2.0 113 1.9 2.0 146 1.7 2.0 69 na na <5
2.6 3.0 210 2.8 3.0 71 2.6 3.0 23 2.6 3.0 5 2.4 3.0 111 2.8 3.0 140 2.0 2.0 69 na na <5
2.6 3.0 208 2.9 3.0 70 2.5 3.0 25 3.4 4.0 5 2.4 3.0 108 2.8 3.0 141 2.2 2.0 66 na na <5
3.1 3.0 217 3.5 4.0 73 3.8 4.0 25 3.8 4.0 5 2.7 3.0 114 3.4 4.0 148 2.5 3.0 68 na na <5
Mispricing of debt
1.8 2.0 208 1.8 2.0 71 1.9 2.0 25 1.8 1.0 5 1.7 1.0 107 2.0 2.0 141 1.1 1.0 66 na na <5
2.1 2.0 207 2.1 2.0 70 1.8 2.0 25 2.6 3.0 5 2.1 2.0 107 2.2 2.0 140 1.8 2.0 66 na na <5
2.4 3.0 209 2.7 3.0 71 1.8 2.0 25 2.6 3.0 5 2.3 2.0 108 2.5 3.0 140 2.1 2.0 68 na na <5
2.1 2.0 208 2.4 3.0 70 1.9 2.0 25 2.6 3.0 5 2.0 2.0 108 2.3 2.0 140 1.8 2.0 67 na na <5
Market depth
2.6 3.0 209 3.0 3.0 71 3.3 3.0 25 3.0 4.0 5 2.2 2.0 108 3.0 3.0 140 1.8 1.5 68 na na <5
1.5 1.0 203 1.2 1.0 69 1.5 1.0 24 1.8 1.0 5 1.7 1.0 105 1.6 1.0 138 1.3 1.0 64 na na <5
2.7 3.0 212 2.6 3.0 72 2.7 3.0 25 3.0 3.0 5 2.7 3.0 110 2.7 3.0 144 2.7 3.0 67 na na <5
1.4 1.0 203 1.7 2.0 67 1.8 1.0 24 2.0 2.0 5 1.1 1.0 107 1.6 1.0 137 0.9 0.0 65 na na <5
52
February 2006
4.4: Foreign Debt Issuance by Region, Ratings and Listing

Question:
Have you issued or considered issuing debt in foreign currencies or swapping your local debt into foreign currencies?
Results of Question 4.4: Foreign Debt Issuance by Region, Ratings and Listing
Yes
No
57%
43%
239
71%
29%
35
67%
33%
na
na
<5
Germany
46%
54%
50
Japan
60%
40%
25
Latin America
90%
10%
10
North America
54%
46%
24
52%
48%
84
na
na
<5
Investment Grade
70%
30%
81
70%
30%
27
Not Rated
60%
40%
Undisclosed
45%
55%
126
Listed
65%
35%
157
Not Listed
42%
58%
79
na
na
<5
All
Region
Eastern Europe, Middle East & Africa
Undisclosed
Ratings
Listing
Undisclosed
53
February 2006
4.4: Foreign Debt Issuance by Industry

Question:
Have you issued or considered issuing debt in foreign currencies or swapping your local debt into foreign currencies?
Results of Question 4.4: Foreign Debt Issuance by Industry
Yes
No
57%
43%
239
Automobiles
56%
44%
Business Services
80%
20%
Chemicals
73%
27%
15
Consumer
44%
56%
39
Consumer Finance
67%
33%
60%
40%
50%
50%
10
56%
44%
50
Media
45%
55%
11
Metals & Mining
33%
67%
Oil & Gas
73%
27%
11
Technology
57%
43%
14
Telecommunications
88%
13%
69%
31%
16
Utilities
77%
23%
13
39%
61%
18
All
Industry
Undisclosed & Other
54
February 2006
4.5: Factors Affecting Currency Mix

Question:
How important were the following factors in your decision to issue debt in foreign currencies or swap your local debt into foreign currencies?
Results of Question 4.5: Factors Affecting Currency Mix
Not Important
Very Important
~x
20%
7%
13%
15%
30%
16%
2.7
3.0
122
19%
10%
6%
11%
30%
23%
2.9
4.0
125
23%
14%
10%
19%
16%
17%
2.4
3.0
126
21%
17%
11%
26%
17%
9%
2.3
3.0
121
24%
19%
16%
17%
16%
8%
2.1
2.0
122
10%
6%
7%
26%
22%
30%
3.3
4.0
122
11%
14%
9%
13%
29%
24%
3.1
4.0
125
25%
22%
17%
18%
13%
7%
1.9
2.0
120
22%
14%
14%
24%
19%
7%
2.2
2.0
121
45%
23%
13%
11%
5%
3%
1.2
1.0
119
55
February 2006
4.5: Factors Affecting Currency Mix by Region

Question:
How important were the following factors in your decision to issue debt in foreign currencies or swap your local debt into foreign
currencies?
~x
~x
~x
~x
~x
~x
~x
~x
~x
Undisclosed
Western Europe
excluding Germany
North America
Latin America
Japan
Germany
Eastern Europe,
Australia & New

Zealand
All
Results of Question 4.5: Factors Affecting Currency Mix by Region
~x
2.7 3.0 122 4.1 4.0 23 na na <5 na na <5 1.9 1.0 21 3.6 4.0 12 2.5 2.5 8 2.5 2.0 13 2.2 2.0 38 na na <5
2.9 4.0 125 4.7 5.0 23 na na <5 na na <5 1.9 1.0 21 4.1 4.0 14 3.4 4.0 8 3.4 4.0 13 2.1 2.0 39 na na <5
2.4 3.0 126 4.4 5.0 23 na na <5 na na <5 1.6 1.0 22 3.2 3.0 13 2.9 3.0 9 2.5 3.0 13 1.5 1.0 39 na na <5
2.3 3.0 121 3.1 3.0 22 na na <5 na na <5 1.0 0.0 21 2.3 3.0 12 3.1 3.0 8 2.8 3.0 13 2.0 2.0 38 na na <5
2.1 2.0 122 3.0 3.0 22 na na <5 na na <5 0.9 0.0 21 3.0 3.0 13 2.5 2.0 8 1.4 1.0 13 1.8 2.0 38 na na <5
3.3 4.0 122 3.9 4.0 21 na na <5 na na <5 3.2 4.0 21 2.9 3.0 12 3.9 4.0 9 3.0 3.0 13 3.3 4.0 39 na na <5
3.1 4.0 125 4.0 4.0 22 na na <5 na na <5 1.8 1.0 21 3.3 4.0 13 3.9 4.0 9 2.3 2.0 13 3.1 4.0 40 na na <5
1.9 2.0 120 2.9 3.0 21 na na <5 na na <5 0.5 0.0 21 2.4 3.0 12 3.5 3.5 8 2.5 2.0 13 1.5 1.0 38 na na <5
2.2 2.0 121 3.0 3.0 21 na na <5 na na <5 1.2 1.0 21 2.4 3.0 12 2.4 2.0 8 2.5 3.0 13 2.3 3.0 39 na na <5
1.2 1.0 119 2.7 3.0 21 na na <5 na na <5 0.2 0.0 21 1.5 1.5 12 1.8 1.5 8 0.8 1.0 13 0.8 0.0 37 na na <5
56
February 2006
4.5: Factors Affecting Currency Mix by Industry

Question:
How important were the following factors in your decision to issue debt in foreign currencies or swap your local debt in foreign currencies?
~x
~x
~x
~x
~x
~x
~x
~x
~x
~x
~x
~x
~x
~x
~x
Undisclosed & Other
Utilities
Transportation
Services
Telecommuni cations
Technology
Oil and Gas
Metals and Mining
Media
Industrials and
Materials
Health Care &

Pharmaceuticals
Diversified/Conglo
merates
Consumer Finance
Consumer
Chemicals
Automobiles
All
Business Services
Results of Question 4.5: Factors Affecting Currency Mix by Industry
~x
~x
2.7 3.0 122 na na <5 na na <5 2.2 2.5 10 2.9 4.0 16 na na <5 na na <5 0.8 0.0 5 2.4 3.0 25 na na <5 na na <5 2.9 2.5 8 3.3 4.0 8 2.8 3.5 6 2.6 2.5 10 2.8 3.0 8 3.0 4.0 6
2.9 4.0 125 3.6 4.0 5
3.1 4.0 125 3.8 5.0 5
na na <5 1.3 1.5 10 3.0 4.0 17 na na <5 na na <5 1.4 0.0 5 2.8 4.0 25 na na <5 na na <5 4.0 4.5 8 3.6 4.0 8 3.7 4.0 6 3.3 4.0 10 2.9 3.0 9 3.8 4.5 6
na na <5 2.4 2.5 10 3.2 4.0 17 na na <5 na na <5 1.6 1.0 5 2.4 3.0 25 na na <5 na na <5 3.3 4.0 8 3.8 4.0 8 4.0 4.0 6 2.8 2.5 10 3.9 4.0 9 3.0 3.5 6
57
February 2006
4.5: Factors Affecting Currency Mix by Ratings and Listing

Question:
How important were the following factors in your decision to issue debt in foreign currencies or swap your local debt into foreign currencies?
Results of Question 4.5: Factors Affecting Currency Mix by Ratings and Listing
~x
~x
~x
~x
~x
~x
Undisclosed
Not Listed
Listed
Undisclosed
Listing
Not Rated
Non-investment
Grade
All
Investment Grade
Ratings
~x
~x N
2.7 3.0 122 2.8 3.0 54 2.8 3.5 18 na na <5 2.7 3.0 47 2.8 3.0 93 2.6 2.5 28 na na <5
2.9 4.0 125 2.6 3.0 55 3.4 4.0 18 na na <5 3.1 4.0 49 3.0 4.0 95 2.6 3.0 29 na na <5
2.4 3.0 126 1.8 1.0 56 3.4 4.0 18 na na <5 2.8 3.0 49 2.4 3.0 95 2.5 2.5 30 na na <5
2.3 3.0 121 2.0 2.0 54 3.1 3.0 18 na na <5 2.3 3.0 46 2.3 3.0 93 2.2 3.0 27 na na <5
2.1 2.0 122 1.7 2.0 54 3.0 3.0 18 na na <5 2.1 2.0 47 2.1 2.0 95 2.0 2.0 26 na na <5
3.3 4.0 122 3.3 4.0 54 3.4 3.5 18 na na <5 3.4 4.0 47 3.4 4.0 94 3.2 3.0 27 na na <5
3.1 4.0 125 3.4 4.0 56 3.0 3.5 18 na na <5 2.7 3.0 48 3.2 4.0 95 2.8 4.0 29 na na <5
1.9 2.0 120 1.8 1.5 54 2.7 3.0 18 na na <5 1.8 1.0 45 1.9 2.0 92 2.1 2.0 27 na na <5
2.2 2.0 121 2.3 3.0 54 2.7 3.0 18 na na <5 2.0 2.0 46 2.4 3.0 93 1.8 2.0 27 na na <5
1.2 1.0 119 1.1 1.0 53 1.8 1.0 18 na na <5 1.0 1.0 45 1.2 1.0 92 1.0 1.0 26 na na <5
58
February 2006
4.6 Factors Affecting Source of Debt

Question:
How important are the following factors in your choice between bank debt, privately placed debt, and publicly issued debt?
Results of Question 4.6 Factors Affecting Source of Debt
Not Important
Very Important
~x
5%
7%
6%
19%
34%
29%
3.6
4.0
228
8%
5%
8%
22%
33%
23%
3.4
4.0
227
8%
9%
16%
26%
31%
10%
2.9
3.0
224
Speed of execution
6%
6%
16%
32%
31%
10%
3.1
3.0
225
Covenants
7%
4%
8%
28%
35%
18%
3.3
4.0
225
24%
12%
16%
19%
20%
9%
2.2
2.0
225
8%
14%
18%
26%
23%
11%
2.7
3.0
215
Prior experience
12%
17%
19%
19%
24%
8%
2.5
3.0
219
22%
25%
22%
13%
15%
4%
1.8
2.0
217
15%
13%
17%
24%
23%
8%
2.5
3.0
222
Transaction costs
5%
5%
14%
30%
31%
16%
3.2
3.0
225
26%
30%
19%
17%
7%
1%
1.5
1.0
220
27%
28%
20%
18%
7%
1%
1.5
1.0
217
59
February 2006
4.6: Factors Affecting Source of Debt by Region

Question:
~x
~x
~x
~x
~x
~x
~x
~x
~x
Undisclosed
Western Europe
excluding Germany
North America
Latin America
Japan
Germany
Eastern Europe,
Australia & New

Zealand
All
Results of Question 4.6: Factors Affecting Source of Debt by Region
~x
3.6 4.0 228 4.0 4.0 33 3.0 3.5 6
na na <5 3.3 4.0 47 4.0 4.0 24 4.4 4.5 10 4.1 4.0 22 3.2 3.0 81 na na <5
3.4 4.0 227 3.8 4.0 33 3.5 3.5 6
na na <5 3.4 4.0 47 3.1 3.0 24 4.3 4.0 10 3.8 4.0 22 3.0 3.0 80 na na <5
2.9 3.0 224 3.0 3.0 33 2.7 3.0 6
na na <5 2.9 3.0 47 3.3 3.0 23 2.9 3.0 10 3.0 4.0 22 2.7 3.0 78 na na <5
Speed of execution
3.1 3.0 225 3.6 4.0 33 3.0 3.0 6
na na <5 2.8 3.0 47 3.3 3.0 24 2.9 3.0 10 3.3 3.5 22 2.8 3.0 78 na na <5
Covenants
3.3 4.0 225 3.7 4.0 33 3.2 3.5 6
na na <5 2.7 3.0 47 3.6 4.0 23 4.1 4.0 10 4.0 4.0 22 3.2 3.0 79 na na <5
2.2 2.0 225 3.1 3.0 32 2.0 2.0 6
na na <5 2.1 2.0 47 2.5 2.5 24 1.9 2.0 10 1.2 1.0 22 2.3 2.0 79 na na <5
2.7 3.0 215 3.6 4.0 30 1.8 1.5 6
na na <5 2.3 2.5 44 3.2 3.0 23 2.9 3.0 10 2.3 2.0 22 2.7 3.0 76 na na <5
Prior experience
2.5 3.0 219 3.2 3.0 31 1.5 1.0 6
na na <5 1.9 2.0 46 2.6 3.0 23 3.1 3.5 10 2.9 3.0 22 2.5 2.0 77 na na <5
1.8 2.0 217 3.1 4.0 31 0.8 1.0 6
na na <5 1.7 1.0 47 2.3 2.0 22 2.0 1.0 9 1.3 1.0 22 1.5 1.0 76 na na <5
2.5 3.0 222 3.4 4.0 31 2.2 3.0 6
na na <5 2.7 3.0 47 3.0 3.0 23 3.1 3.0 10 1.9 1.0 22 2.1 2.0 78 na na <5
Transaction costs
3.2 3.0 225 3.6 4.0 33 2.8 3.0 6
na na <5 3.1 3.0 47 3.7 4.0 24 3.5 3.5 10 2.7 2.5 22 3.1 3.0 78 na na <5
1.5 1.0 220 2.4 3.0 33 0.7 0.5 6
na na <5 1.1 1.0 46 2.0 2.0 23 1.6 1.0 10 1.6 1.0 22 1.3 1.0 76 na na <5
1.5 1.0 217 2.4 3.0 32 1.0 0.5 6
na na <5 1.2 1.0 46 2.2 3.0 23 1.8 1.5 10 1.6 1.0 22 1.2 1.0 74 na na <5
60
February 2006
4.6: Factors Affecting Source of Debt by Industry

Question:
~x
~x
~x
~x
~x
~x
~x
~x
~x
~x
~x
~x
~x
~x
~x
Undisclosed & Other
Utilities
Transportation
Services
Telecommuni cations
Technology
Oil and Gas
Metals and Mining
Media
Industrials and
Materials
Health Care &

Pharmaceuticals
Diversified/Conglo
merates
Consumer Finance
Consumer
Chemicals
Automobiles
All
Business Services
Results of Question 4.6: Factors Affecting Source of Debt by Industry
~x
~x
3.6 4.0 228 4.4 5.0 9 4.0 4.0 5 3.3 3.0 15 3.4 4.0 35 4.3 4.0 6 3.7 4.0 6 3.5 4.0 10 3.1 3.0 49 3.8 4.0 10 3.7 4.0 7 4.1 4.0 12 3.7 4.0 13 3.9 4.0 7 3.8 4.0 16 4.1 5.0 13 3.5 4.0 15
3.4 4.0 227 3.7 4.0 9 3.6 4.0 5 3.1 3.0 15 3.1 3.0 35 4.0 4.0 6 3.3 4.0 6 3.6 4.0 10 2.8 3.0 49 3.0 3.5 10 3.9 4.0 7 3.6 4.0 12 4.1 4.0 13 4.1 4.0 7 3.8 4.0 16 3.8 4.0 12 3.3 4.0 15
2.9 3.0 224 2.6 2.0 9 2.8 3.0 5 2.9 3.0 15 2.9 3.0 35 3.3 3.0 6 2.8 3.0 6 3.2 3.5 10 2.7 3.0 47 2.9 2.5 10 3.3 4.0 7 3.0 3.0 12 3.5 4.0 13 3.1 4.0 7 3.1 4.0 16 3.5 3.0 11 2.3 2.0 15
Speed of execution
3.1 3.0 225 3.3 3.0 9 2.4 2.0 5 2.5 3.0 15 3.3 3.0 35 3.7 3.5 6 3.0 3.0 6 2.9 3.0 10 2.8 3.0 48 3.3 3.5 10 3.1 3.0 7 3.0 3.0 12 3.6 4.0 13 3.7 4.0 7 3.1 3.5 16 3.1 3.0 11 2.7 3.0 15
Covenants
3.3 4.0 225 2.4 3.0 9 3.2 4.0 5 3.5 3.0 15 3.3 4.0 35 3.8 4.0 6 3.8 5.0 6 3.5 4.0 10 2.9 3.0 49 3.5 3.5 10 3.4 3.0 7 3.9 4.0 12 3.9 4.0 13 4.1 4.0 7 3.3 3.5 16 3.7 4.0 10 2.7 3.0 15
2.2 2.0 225 1.9 3.0 9 1.8 1.0 5 1.8 2.0 15 2.1 2.0 35 3.2 3.0 5 2.5 3.0 6 1.8 2.0 10 2.0 2.0 49 1.8 1.5 10 2.6 2.5 8 2.6 2.5 12 2.8 3.0 13 2.7 3.0 7 2.5 3.0 15 2.9 3.0 10 2.3 3.0 16
2.7 3.0 215 3.1 3.0 7 2.8 2.0 5 1.7 2.0 15 3.0 3.0 34 4.2 4.0 5
Prior experience
2.5 3.0 219 1.6 1.0 9 2.6 3.0 5 2.0 2.0 15 2.6 3.0 34 3.3 3.5 6 2.2 2.0 5 2.3 2.0 10 2.2 2.0 48 3.0 3.0 10 2.3 2.0 7 3.0 3.0 12 2.8 3.0 13 3.6 4.0 7 2.6 2.5 14 2.8 3.0 9 2.4 3.0 15
1.8 2.0 217 2.4 3.0 9 2.0 2.0 5 1.3 1.0 15 2.2 2.0 33 3.8 4.0 5 2.2 2.0 5 1.7 1.0 10 1.3 1.0 48 0.8 1.0 10 1.6 2.0 7 2.0 1.0 11 2.8 3.0 13 2.1 2.0 7 1.9 2.0 15 2.2 2.0 9 1.9 2.0 15
2.5 3.0 222 2.6 3.0 9 3.0 4.0 5 2.5 2.0 15 2.6 3.0 34 4.0 4.0 5 3.2 3.0 5 1.8 1.0 10 2.0 2.0 49 1.8 1.5 10 2.3 3.0 7 3.2 3.0 12 3.2 3.0 13 3.3 4.0 7 2.3 2.0 15 3.1 3.0 11 2.6 3.0 15
Transaction costs
3.2 3.0 225 3.6 3.0 9 3.8 3.0 5 2.8 3.0 15 3.3 3.0 35 4.0 4.5 6 4.2 4.5 6 2.5 2.5 10 3.2 3.0 48 2.8 3.0 10 3.6 4.0 7 2.8 2.5 12 3.5 4.0 13 3.3 4.0 7 3.4 3.5 16 3.4 4.0 11 3.2 4.0 15
1.5 1.0 220 1.0 1.0 9 1.2 1.0 5 0.9 1.0 15 1.6 1.0 33 3.6 3.0 5 1.2 1.0 6 1.5 1.5 10 1.1 1.0 47 1.1 1.0 10 0.9 1.0 7 2.2 2.0 12 2.5 3.0 13 2.0 2.0 7 1.6 1.5 16 2.5 3.0 10 1.5 1.0 15
1.5 1.0 217 1.0 1.0 9 1.2 1.0 5 1.1 1.0 15 1.7 1.0 33 3.2 3.0 5
na na <5 2.2 2.0 10 2.6 3.0 48 2.6 2.0 10 2.4 2.0 7 3.3 3.0 12 3.2 3.0 13 3.6 3.0 7 2.7 3.0 15 2.8 3.0 9 2.3 3.0 14
na na <5 1.7 1.5 10 1.2 1.0 47 0.8 1.0 10 0.9 1.0 7 2.3 2.5 12 2.1 2.0 13 1.7 1.0 7 1.6 2.0 16 2.3 2.0 9 1.5 2.0 15
61
February 2006
4.6: Factors Affecting Source of Debt by Ratings and Listing

Question:
Results of Question 4.6: Factors Affecting Source of Debt by Ratings and Listing
~x
~x
~x
~x
~x
~x
Undisclosed
Not Listed
Listed
Undisclosed
Listing
Not Rated
Non-investment
Grade
All
Investment Grade
Ratings
~x
~x N
3.6 4.0 228 4.0 4.0 78 4.0 4.0 27 3.6 4.0 5 3.2 4.0 118 3.9 4.0 156 2.9 3.0 71 na na <5
3.4 4.0 227 3.8 4.0 78 4.1 4.0 27 3.2 4.0 5 2.9 3.0 117 3.7 4.0 155 2.6 3.0 71 na na <5
2.9 3.0 224 3.1 3.0 77 3.2 4.0 27 2.8 3.0 5 2.8 3.0 115 3.1 3.0 153 2.7 3.0 70 na na <5
Speed of execution
3.1 3.0 225 3.1 3.0 77 3.5 4.0 27 3.0 3.0 5 3.0 3.0 116 3.2 3.0 153 2.9 3.0 71 na na <5
Covenants
3.3 4.0 225 3.4 4.0 76 4.1 4.0 27 3.4 3.0 5 3.1 3.0 117 3.6 4.0 153 2.8 3.0 71 na na <5
2.2 2.0 225 1.7 1.0 75 2.2 2.0 27 2.0 3.0 5 2.6 3.0 118 2.2 2.0 152 2.4 3.0 71 na na <5
2.7 3.0 215 2.6 3.0 72 3.2 3.0 27 3.0 3.0 5 2.7 3.0 111 2.8 3.0 146 2.5 3.0 68 na na <5
Prior experience
2.5 3.0 219 2.6 3.0 74 3.1 3.0 27 2.4 3.0 5 2.3 2.0 113 2.7 3.0 149 2.1 2.0 69 na na <5
1.8 2.0 217 1.7 1.0 73 2.1 2.0 27 1.8 2.0 5 1.8 2.0 112 1.9 2.0 147 1.8 2.0 69 na na <5
2.5 3.0 222 2.8 3.0 76 3.1 3.0 27 2.4 2.0 5 2.2 2.0 114 2.8 3.0 151 2.0 2.0 70 na na <5
Transaction costs
3.2 3.0 225 3.2 3.0 77 3.3 4.0 27 3.8 3.0 5 3.2 3.0 116 3.3 3.0 153 3.1 3.0 71 na na <5
1.5 1.0 220 1.6 1.0 75 2.1 2.0 26 2.0 2.0 5 1.3 1.0 114 1.7 2.0 149 1.2 1.0 70 na na <5
1.5 1.0 217 1.7 2.0 74 2.1 2.0 27 1.8 2.0 5 1.3 1.0 111 1.8 2.0 147 1.1 1.0 69 na na <5
62
January 2006
3.10: Hybrid Securities by Region, Ratings and Listing

Question:
Has your firm issued equities or equity-related securities with the following features?
Convertible preferred or
preference shares
Capped appreciation
preferred shares
Supervoting shares
Trust preferred
securities
Convertible debt
Units consisting of debt

with warrants
Mandatory convertible
securities
Separately issued
warrants
Share of listed
subsidiary
All
Preferred or preference
shares (nonconvertible)
Results of Question 3.10: Hybrid Securities by Region, Ratings and Listing
26%
14%
2%
3%
2%
64%
20%
5%
8%
14%
66
Region
46%
23%
0%
0%
0%
62%
8%
0%
8%
8%
13
na
na
na
na
na
na
na
na
na
na
<5
Eastern Europe, Middle East & Africa
na
na
na
na
na
na
na
na
na
na
<5
Germany
9%
9%
0%
0%
0%
73%
9%
9%
0%
45%
11
Japan
0%
0%
0%
0%
0%
83%
75%
8%
0%
8%
12
<5
Latin America
na
na
na
na
na
na
na
na
na
na
North America
36%
36%
9%
9%
9%
36%
0%
9%
9%
0%
11
21%
7%
0%
0%
0%
79%
14%
0%
14%
14%
14
na
na
na
na
na
na
na
na
na
na
<5
Investment Grade
29%
11%
0%
4%
4%
61%
14%
7%
7%
18%
28
20%
13%
7%
7%
0%
67%
47%
0%
7%
7%
15
na
na
na
na
na
na
na
na
na
na
<5
25%
20%
0%
0%
0%
60%
10%
5%
10%
15%
20
58
Undisclosed
Ratings
Not Rated
Undisclosed
Listing
Listed
21%
9%
0%
0%
2%
72%
21%
5%
7%
12%
Not Listed
71%
57%
14%
29%
0%
0%
14%
0%
0%
29%
na
na
na
na
na
na
na
na
na
na
<5
Undisclosed
63
January 2006
3.10: Hybrid Securities by Industry

Question:
Has your firm issued equities or equity-related securities with the following features?
Preferred or preference
shares (nonconvertible)
Convertible preferred or
preference shares
Capped appreciation
preferred shares
Supervoting shares
Trust preferred
securities
Convertible debt
Units consisting of debt

with warrants
Mandatory convertible
securities
Separately issued
warrants
Share of listed
subsidiary
Results of Question 3.10: Hybrid Securities by Industry
26%
14%
2%
3%
2%
64%
20%
5%
8%
14%
66
Automobiles
na
na
na
na
na
na
na
na
na
na
<5
Business Services
na
na
na
na
na
na
na
na
na
na
<5
Chemicals
na
na
na
na
na
na
na
na
na
na
<5
Consumer
All
Industry
38%
0%
0%
0%
0%
63%
25%
0%
13%
13%
Consumer Finance
na
na
na
na
na
na
na
na
na
na
<5
na
na
na
na
na
na
na
na
na
na
<5
na
na
na
na
na
na
na
na
na
na
<5
29%
7%
0%
0%
7%
64%
36%
0%
0%
14%
14
Media
na
na
na
na
na
na
na
na
na
na
<5
Metals & Mining
na
na
na
na
na
na
na
na
na
na
<5
Oil & Gas
na
na
na
na
na
na
na
na
na
na
<5
29%
29%
0%
0%
0%
71%
0%
0%
29%
0%
Telecommunications
na
na
na
na
na
na
na
na
na
na
<5
0%
17%
0%
0%
0%
83%
0%
0%
0%
17%
Utilities
na
na
na
na
na
na
na
na
na
na
<5
Undisclosed & Other
na
na
na
na
na
na
na
na
na
na
<5
Technology
64
January 2006
3.11: Factors Affecting Hybrid Issuance

Question:
If so, which factors were more important in your decision to issue multiple classes of equity securities or equity-linked securities?
Results of Question 3.11: Factors Affecting Hybrid Issuance
Not Important
Very Important
~x
23%
11%
21%
16%
23%
7%
2.3
2.0
57
45%
20%
13%
9%
11%
2%
1.3
1.0
55
35%
24%
13%
11%
13%
5%
1.6
1.0
55
Tax considerations
30%
25%
14%
16%
13%
2%
1.6
1.0
56
31%
21%
10%
21%
12%
5%
1.8
1.0
58
38%
23%
13%
14%
7%
5%
1.5
1.0
56
41%
23%
11%
11%
9%
5%
1.4
1.0
56
31%
24%
15%
13%
9%
7%
1.7
1.0
54
20%
3%
5%
18%
32%
22%
3.0
4.0
60
26%
2%
11%
18%
33%
11%
2.6
3.0
57
31%
9%
14%
21%
14%
12%
2.1
2.0
58
65
January 2006
3.11: Factors Affecting Hybrid Issuance by Region

Question:
~x
~x
~x
~x
~x
~x
~x
~x
~x
Undisclosed
Western Europe
excluding Germany
North America
Latin America
Japan
Germany
Eastern Europe,
Australia & New

Zealand
All
Results of Question 3.11: Factors Affecting Hybrid Issuance by Region
~x
2.3 2.0 57 3.2 3.5 10 na na <5 na na <5 1.0 0.0 12 2.6 2.5 10 na na <5 2.1 2.0 10 2.3 2.0 11 na na <5
1.3 1.0 55 3.1 3.0 9
na na <5 na na <5 0.9 0.0 12 1.1 1.0 9
na na <5 0.4 0.0 10 1.1 1.0 11 na na <5
1.6 1.0 55 2.8 3.0 9
na na <5 na na <5 1.0 0.0 12 1.4 1.0 9
na na <5 1.5 0.5 10 1.0 1.0 11 na na <5
Tax considerations
1.6 1.0 56 2.7 3.0 10 na na <5 na na <5 1.3 1.0 12 1.1 1.0 9
na na <5 1.2 1.0 10 1.2 1.0 11 na na <5
1.5 1.0 56 3.1 3.0 9
1.4 1.0 56 3.2 3.5 10 na na <5 na na <5 1.0 0.0 12 1.2 1.0 9
na na <5 1.0 0.0 10 0.6 0.0 11 na na <5
1.7 1.0 54 2.6 3.0 9
na na <5 2.1 2.0 9 1.2 1.0 11 na na <5
2.6 3.0 57 3.4 4.0 9
2.1 2.0 58 3.0 3.0 10 na na <5 na na <5 2.2 2.0 13 2.4 2.0 9
na na <5 na na <5 0.8 0.0 12 1.2 1.0 9

na na <5 na na <5 1.8 1.5 12 1.0 1.0 9
na na <5 1.0 0.0 10 1.5 1.0 12 na na <5
na na <5 na na <5 2.2 3.0 13 2.9 3.0 10 na na <5 2.2 2.5 10 2.8 3.0 11 na na <5
na na <5 1.7 0.0 11 1.8 1.0 11 na na <5
66
January 2006
3.11: Factors Affecting Hybrid Issuance by Industry

Question:
~x
~x
~x
~x
~x
~x
~x
~x
~x
~x
~x
~x
~x
~x
~x
Undisclosed & Other
Utilities
Transportation
Services
Telecommuni cations
Technology
Oil and Gas
Metals and Mining
Media
Industrials and
Materials
Health Care &

Pharmaceuticals
Diversified/Conglo
merates
Consumer Finance
Consumer
Chemicals
Automobiles
All
Business Services
Results of Question 3.11: Factors Affecting Hybrid Issuance by Industry
~x
~x
2.3 2.0 57 na na <5 na na <5 na na <5 1.7 0.5 6
na na <5 na na <5 na na <5 2.5 2.0 12 na na <5 na na <5 na na <5 2.1 3.0 7
na na <5 na na <5 na na <5 na na <5
1.3 1.0 55 na na <5 na na <5 na na <5 1.3 0.5 6
1.6 1.0 55 na na <5 na na <5 na na <5 2.0 1.5 6
Tax considerations
1.6 1.0 56 na na <5 na na <5 na na <5 1.7 1.5 6
1.8 1.0 58 na na <5 na na <5 na na <5 1.7 1.0 7
na na <5 2.0 2.0 5
1.5 1.0 56 na na <5 na na <5 na na <5 0.7 0.0 6
1.4 1.0 56 na na <5 na na <5 na na <5 1.0 0.5 6
na na <5 3.0 4.0 5
1.7 1.0 54 na na <5 na na <5 na na <5 1.3 1.0 6
3.0 4.0 60 na na <5 na na <5 na na <5 2.4 3.0 7
na na <5 4.0 4.0 5
2.6 3.0 57 na na <5 na na <5 na na <5 1.9 0.0 7
2.1 2.0 58 na na <5 na na <5 na na <5 1.5 0.5 6
na na <5 2.6 3.0 5
na na <5 na na <5
na na <5 na na <5
na na <5 na na <5
na na <5 na na <5
67
January 2006
3.11: Factors Affecting Hybrid Issuance by Ratings and Listing

Question:
Results of Question 3.11: Factors Affecting Hybrid Issuance by Ratings and Listing
~x
~x
~x
~x
~x
~x
Undisclosed
Not Listed
Listed
Undisclosed
Listing
Not Rated
Non-investment
Grade
All
Investment Grade
Ratings
~x
~x N
2.3 2.0 57 2.1 2.0 24 2.1 2.0 13 na na <5 2.6 3.0 17 2.3 2.0 50 2.0 2.0 6
na na <5
1.3 1.0 55 1.0 0.0 23 1.5 1.0 13 na na <5 1.3 0.5 16 1.2 1.0 48 1.7 1.0 6
na na <5
1.6 1.0 55 1.0 1.0 23 2.5 2.0 13 na na <5 1.7 1.0 16 1.5 1.0 48 1.7 1.0 6
na na <5
Tax considerations
1.6 1.0 56 1.4 1.0 23 1.4 1.0 13 na na <5 1.8 1.0 17 1.4 1.0 48 2.4 2.0 7
na na <5
1.8 1.0 58 1.7 1.0 23 1.9 1.5 14 na na <5 1.5 1.0 18 1.7 1.0 50 1.9 2.0 7
na na <5
1.5 1.0 56 1.3 1.0 24 1.5 2.0 13 na na <5 1.4 1.0 16 1.4 1.0 48 1.4 1.0 7
na na <5
1.4 1.0 56 1.2 1.0 23 1.2 1.0 13 na na <5 1.4 1.0 17 1.5 1.0 49 0.8 0.0 6
na na <5
1.7 1.0 54 1.9 1.5 22 1.8 2.0 13 na na <5 1.1 1.0 16 1.7 1.0 47 2.0 1.5 6
na na <5
3.0 4.0 60 3.0 4.0 25 2.9 4.0 15 na na <5 3.1 4.0 17 3.3 4.0 53 1.5 1.0 6
na na <5
2.6 3.0 57 2.7 3.5 24 2.4 3.0 14 na na <5 2.5 3.0 16 2.8 3.0 50 1.2 0.5 6
na na <5
2.1 2.0 58 2.2 2.0 25 2.4 3.0 13 na na <5 1.6 1.0 17 2.2 2.0 51 2.0 2.0 6
na na <5
68
Corporate Financial Policies and Practices Series
Following an extensive survey of Global Corporate Financial Policies and Practices, undertaken jointly with
Professor Henri Servaes (London Business School) and Professor Peter Tufano (Harvard Business School),
along with our secondary project sponsors, the Global Association of Risk Professionals (GARP), we are
pleased to provide corporate clients with extensive information covering:
Research Papers
Published
CFO Views on the Importance and Execution of the Finance Function
Jan 2006
The Theory and Practice of Corporate Capital Structure
Jan 2006
Feb 2006
The Theory and Practice of Corporate Liquidity Policy
Jan 2006
The Theory and Practice of Corporate Dividend and Share Repurchase Policy
Feb 2006
The Theory and Practice of Corporate Risk Management Policy
Feb 2006
The Questions and Sample of the Global Survey of Corporate Financial Policies and Practices
Jan 2006
The above reports can be accessed, free of charge, online at: www.dbbonds.com/lsg/reports.jsp. Alternatively
you can order a CD by sending an email to: finance.survey@db.com.
In addition to the abovementioned research papers, both the website and CD contain streaming video of
Professors Servaes and Tufano presenting an overview of the results at a Deutsche Bank hosted conference.
Disclaimer
This information is provided as an accommodation for educational purpose only and does not create any legally binding obligations on
Deutsche Bank AG London and/or its affiliates (collectively "DB"). DBs provision of this information does not constitute an offer to sell or a
solicitation of an offer to buy any instrument or service. This document and the information contained herein does not constitute investment
advice and DB is not acting in a fiduciary capacity with respect to any party. The information contained in this document is based on
material we believe to be reliable; however, we do not represent that it is accurate, current, complete, or error free. The information used
was taken from a sample group and may not be indicative of the market as a whole. Results were produced from survey participants and
DB is relying on their statements. Assumptions, estimates and opinions contained in this document are as of the date of the document and
are subject to change without notice. The reliability, accuracy, completeness or timeliness of the information contained in this document
cannot be guaranteed and therefore you should not use this information to make any investment decision. The information contained
herein is made available to you on the basis that DB retains all respective intellectual property and other rights in and to the information.
You may not engage in any secondary distribution of this document without the express written permission of DB. DB SPECIFICALLY
DISCLAIMS ALL LIABILITY FOR ANY DIRECT, INDIRECT, CONSEQUENTIAL OR OTHER LOSSES OR DAMAGES INCLUDING LOSS
OF PROFITS INCURRED BY YOU OR ANY THIRD PARTY THAT MAY ARISE FROM ANY RELIANCE ON THIS DOCUMENT OR FOR
THE RELIABILITY, ACCURACY, COMPLETENESS OR TIMELINESS THEREOF. Deutsche Bank Securities, Inc., a member of the NYSE,
NASD and SIPC, a subsidiary of Deutsche Bank AG, conducts investment banking and securities activities in the United States. Deutsche
Bank AG London Branch is a member of the LSE and regulated by the FSA.
Copyright 2006 Deutsche Bank AG.

Corporate Debt Structure - Full Paper PDF

Transféré par

Informations du document

Description originale:

Titre original

Copyright

Formats disponibles

Partager ce document

Partager ou intégrer le document

Options de partage

Avez-vous trouvé ce document utile ?

Ce contenu est-il inapproprié ?

Droits d'auteur :

Formats disponibles

Corporate Debt Structure - Full Paper PDF

Transféré par

Droits d'auteur :

Formats disponibles

Liability Strategies Group

The Theory and Practice of Corporate

The Theory and Practice of Corporate Debt Structure

Reduction of transaction costs

Provision of better information to the market

Reduction of agency costs

Improvement of access to capital markets

Reduction of distress costs

Firms consider current pricing as well as current prices relative to

Liability Strategies Group

The Theory and Practice of Corporate Debt Structure

Liability Strategies Group

The Theory and Practice of Corporate Debt Structure

Liability Strategies Group

The Theory and Practice of Corporate Debt Structure

Liability Strategies Group

The Theory and Practice of Corporate Debt Structure

Liability Strategies Group

The Theory and Practice of Corporate Debt Structure

Theoretical & Practical Considerations

Global Survey of Corporate Financial Policies & Practices

Liability Strategies Group

Corporate Capital Structure

Corporate Dividend Policy

Corporate Risk Management

The Theory and Practice of Corporate Debt Structure

All these papers are available at www.dbbonds.com/lsg/reports.jsp. The website also

Notation and Typographical Conventions

Liability Strategies Group

The Theory and Practice of Corporate Debt Structure

Figure 1: Example Upw ard Sloping Yield Curve

Liability Strategies Group

The Theory and Practice of Corporate Debt Structure

Figure 2: Example Inverted Yield Curve

(1+ 5%)2 1 = 1.1025 1 = 7.04%

Liability Strategies Group

The Theory and Practice of Corporate Debt Structure

Liability Strategies Group

The Theory and Practice of Corporate Debt Structure

Credit Risk vs. Interest Rate Risk

Liability Strategies Group

The Theory and Practice of Corporate Debt Structure

Non Investment Grade

Source: Deutsche Bank iBoxx Indices

The Term Premium and the Credit-Risk Premium

Liability Strategies Group

For holding long-dated securities

Credit Risk Premium:

For holding riskier securities

The Theory and Practice of Corporate Debt Structure

Exchange Rate Determination

Liability Strategies Group

The Theory and Practice of Corporate Debt Structure

Theoretical & Practical Considerations

The Impact of Derivatives

There are no taxes

Corporate executives have the same set of information as investors

There are no transaction costs

Investors and markets are rational

The firms level of investment is fixed

There are no costs of recontracting or bankruptcy